Dipexium Pharmaceuticals' (DPRX) CEO David Luci on Q2 2016 Results - Earnings Call Transcript

Dipexium Pharmaceuticals, LLC (NASDAQ:DPRX) Q2 2016 Results Earnings Conference Call August 4, 2016 8:30 AM ET

Executives

David Garrett - VP-Finance and Corporate Development

David Luci - President and CEO

Robert Shawah - CAO and Treasurer

Analysts

Ben Haynor - Feltl & Company

Elliot Wilbur - Raymond James

Operator

Greetings and welcome to the Dipexium Pharmaceuticals Incorporated Second Quarter 2016 Financial and Operational Results Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. David Garrett, Vice President of Finance and Corporate Development. Thank you, you may begin.

David Garrett

Thank you. Good morning and welcome to the Dipexium Pharmaceuticals’ second quarter 2016 financial results conference call. This morning we issued a press release providing financial results and company highlights for the second quarter of fiscal and calendar year 2016. This press release is available on our website at www.dipexiumpharmaceuticals.com.

Joining me on the call today is David Luci, President and Chief Executive Officer of Dipexium, who will provide a corporate update and outlook for 2016. Following his comments, Robert Shawah, our Chief Accounting Officer will provide an overview of the financial highlights from the quarter ended June 30, 2016 before turning the call back over to David Luci for closing remarks.

As a reminder, during today’s call we will be making certain forward-looking statements. These forward-looking statements are based on current information, assumptions, estimates and projections about future events that are subject to change and involve a number of risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. Investors should consider these risks and other information described in our filings made with the Securities and Exchange Commission, including our Annual Report on Form 10-K filed March 22, 2016 and our quarterly reports on Form 10-Q including the quarterly report for the second quarter that we filed yesterday. You are cautioned not to place undue reliance on these forward-looking statements, and Dipexium disclaims any obligation to update such statements at any time in the future.

In addition, this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, August 4, 2016. Dipexium undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date and time of this conference call.

I will now turn the conference call over to David Luci.

David Luci

Thank you, David. Good morning everyone and thank you for joining us on this morning's conference call to discuss the Dipexium’s financial results for the quarter ended June 30, 2016. During today's call, we will discuss our financial results for the quarter ended June 30, as well as some key corporate highlights. The second quarter of 2016 was a very important quarter in our corporate development during which we completed enrollment in OneStep-1 and OneStep-2 pivotal Phase 3 clinical trial and a progress on a number of other fronts as we will discuss today.

OneStep-1 and OneStep-2 pivotal Phase 3 trials are now fully enrolled and we anticipate having topline data available in September. In total, we enrolled 189 patients in the OneStep-1 trial and 200 patients in the OneStep-2 trial. In addition, we are pleased to report that we’ve fulfilled the PK sampling requirements set forth in each protocol. You may recall the OneStep clinical trials are designed to establish the clinical superiority and safety of topical Locilex plus standard local wound care as compared to placebo cream plus standard local wound care in the treatment of Mild infections of diabetic foot ulcers.

If successful Locilex has the potential to be the first product specifically approved in the US for the treatment of patients with Mild DFI and with no systemic involvement could become standard-of-care for the treatment of Mild DFI. In terms of manufacturing, we now completed two validation batches of API to support production of the 140 kilogram commercial batches of Locilex formulation and look to complete the third and final validation batch of API at the same batch size in the first quarter of 2017.

We believe the manufacture of these two validation batches will fulfill the manufacturing requirements needed to submit an application for approval in the US and in Europe which we're targeting in each case for the first half of 2017, if the outcomes of the OneStep-1 and OneStep-2 trials is positive. We continue to anticipate that we'll have adequate stability data on three cGMP registration batches of product supply at the time we submit our NDA amendment to support a shelf life of 24 months.

In addition as previously reported we now has successfully manufactured and put on stability a 2 gram tube of Locilex to the used as physician samples to support market introduction. In terms of our patent state, we are pleased to report that we have obtained noticeable allowance on our Hong Kong patent. We expect this patent to be issued in the coming months after XFree of the customary objection period. This patent would run through June 2033.

In the first quarter of 2016, we announced the issuance of international patents in Japan, Australia and New Zealand and noticeable allowance in Europe and Korea. We anticipate more international patents throughout this year and next. In addition, as discussed in our prior earnings calls, we are keenly focused on increasing awareness of Dipexium and Locilex among key constituents and also raising awareness about the current need of patients with Mild DFI.

To this end an abstract has been accepted for poster presentation at ID week in New Orleans, October 26 and 30th titled activity of pexiganan tested against contemporary gram-positive and gram-negative bacteria collected from North America, Europe and Japan, by Dr. Robert Flamm, Chief Scientific Officer at JMI Laboratories who conducted this, just completed study on our behalf. The data to be presented demonstrate that pexiganan the API in Locilex has excellent activity across a broad range of pathogens that typically cause diabetic foot infections and acute bacterial skin infections.

In addition, a second abstract has been accepted for publication in this case, in the Diagnostic Microbiology and Infectious Disease Journal which we anticipate being published in the next few months. This publication is titled in vitro spectrum of pexiganan activity, bactericidal action and resistance selection tested against pathogens with elevated MIC values to topical agents. This study was also conducted at JMI Laboratories by Dr. Robert Flamm on behalf of Dipexium.

I will now turn the call over to Robert Shawah, our Chief Accounting Officer to guide you through the highlights of our second quarter 2015 financial results. Rob?

Robert Shawah

Thank you, David. As mentioned earlier, our second quarter 2016 financial results were included in our press release issued earlier this morning. The company ended the period on June 30, 2016 with cash and short-term investments totaling $22.6 million compared to 27.2 million for the period ended March 31, 2016. Cash used in operating activities for the six months ended June 30 was approximately $9.7 million versus $6.2 million for the six months ended June 30, 2015. The increase in cash used in operating activities is primarily attributable to increased research and development expenses associated with increased Phase 3 trial enrollment and related clinical trial expenses.

Research and development expenses were $3.7 million for the three months ended June 30, 2016 compared to $2.3 million for the three months ended June 30, 2015. The increase is primarily due to increased Phase 3 trial enrollment and the associate expenses and increased manufacturing expenses relating to validation batches. Selling, general and administrative expenses were $1.7 million for the three months ended June 30, 2016 versus a similar amount for the three months ended June 30, 2015.

The company reported a net loss of $5.4 million or $0.52 per diluted share for the three months ended June 30, 2016 compared to a net loss of $4 million or $0.47 per diluted share for the three months ended June 30, 2015. The company had 10,351,613 shares outstanding as of June 30, 2016.

With that, I will turn the call back over to David.

David Luci

Thank you, Rob and thank you all for joining us for today's earnings conference call. We are very pleased to report Dipexium's achievements and activities in the second quarter of 2016 and we look forward to building on this momentum throughout the year.

I would now like to open up the call for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question will come from Ben Haynor of Feltl & Company. Please go ahead.

Ben Haynor

Good morning, gentlemen. Just thinking about what happened once the data comes out and kind of the market sizing and the potential penetration on such, just assuming the data is positive I think you’ve talked in the past about some independent groups that have studied the market and payers and have returned with a price – pricing around $900 in the in the US.

Does that still sound reasonable to you and what might change if you're able to hit certain secondary endpoints specifically wound closure?

David Luci

Thank you, Ben. Yes we’ve conducted market research in the US and in Europe and the big driver of the price that we are able to charge for 15 gram tube full course of treatment is the secondary clinical endpoint or other clinical endpoint on wound closure.

So if we are able to close wounds in addition to curing infections and basically hit that endpoint that clinical end point in our studies, we believe we will get into the clinical section of our package insert and Locilex would become the first therapeutic to bridge the gap and be potentially standard-of-care at closing the diabetic foot ulcer or wounds and cheering mild and moderate infections.

So our current anticipated price is $600 for our 15 gram tube basically one full course of treatment that price could be $1,200 on the high-end, if we hit all of our endpoints in the ones that clinical trials. SO 600 to 1,200 would be the differential and what the price could be at a minimum versus a maximum. And we’ll know after the trial data reads out. In terms of sales in just mild and moderate DFI the product is looking at 300 million to 750 million in peak year sales in the US and Europe in mild and moderate DFI only.

And again the difference between the two is the difference in price and on the high-end if we are closing the wounds in addition to curing the infections; we believe we can achieve higher peak year sales penetration in mild and moderate DFI as well. So our current targeting for sales penetration is peak year penetration of 55% in Mild DFI in the US and Europe and 30% in Moderate DFI in the US and Europe, used in combination using Locilex and combination with a systemic antibiotic. The interesting thing to me is that our patents go out so long.

So, most companies with a pharmaceutical product has 8 to 10 years in the marketing commercialization period. So that limits the number of years you can be at peak year sales. In our case, we believe will be approved on good data, if we get good data from the ones that trials will be approved in the second half of 2017, it will be on the market in January '18 and peak year sales would be 2023 in the US and I would extend out 10 years to 2032. So as most folks have 8 to 10 years of sales potential we should have 10 years of peak year sales potential.

So that make this a lot more attractive we think from a commercial perspective. And in Europe, we think it’d be 8 years of commercialization hitting peak year sales in 2026 factoring it, in the next year to get approved in Europe and two extra years to hit peak year.

Ben Haynor

Okay. That’s very helpful. And then just thinking about entering the DFI guidelines, how quickly do you think that that might be able to happen and those that speed up potentially the timeline on when peak sales might occur?

David Luci

Yes the change to the diabetic foot infection diagnosis and treatment guidelines that’s been contemplated would include the Locilex as a recommendation for Mild DFI.

And we're thinking that those changed guidelines would probably be adopted sometime late next year and it would be very key for our commercialization team because that would basically serve as air support and open a lot of doors and allow a lot quicker sales penetration as perhaps you’re suggesting, because those guidelines are adopted by the Infectious Disease Society of America.

And the next guidelines may even be international guidelines which would harmonize the DFI treatment options of worldwide and if that’s the case then the change in the guidelines will be even more helpful for us.

Ben Haynor

Okay, great. And then I guess what’s the plan on attack in building up a commercial sales organization, do you start going out immediately after you send the package to the FDA and then how big do you think the sales force needs to be the effectively addressed the US and the European markets?

David Luci

The US would be much more robust we’d start with 50 sales reps and we built 125 over a six year period. Excuse me. In Europe, we’d start with 10 sales reps and build out to 25. We’d work with a contract sales organization on a three year contract and at the three year mark in the US the sales reps will flip on to our books. In Europe the sales reps would flip on to our books and the CSO would be off with a new scope of work in Eastern Europe.

Now in terms of the decision-makers in the commercial team, we’ve already soft circled two out of three for the US and the new commercial employees would probably start being announces as being hires prior to our filing for approval. The hires will start after we get the data on the Phase 3 trials. And we have two candidates that would now soft circle for the Chief Commercial Officer position as well.

And we’ve also started interviewing Chief Commercial Officer candidates for the -- to be created Irish subsidiary and that person would probably start sometime in the first half of 2017.

Ben Haynor

Okay, great. Thank you very much for taking the questions, gentlemen.

Operator

[Operator Instructions] Our next question will come from Elliot Wilbur of Raymond James. Please go ahead.

Daniel Sanchez

Hi, it’s Daniel Sanchez on for Elliot Wilbur. Just wondering post readout what are some of the steps you are planning to take before submission and if you could give a little clarity in regards to timeline? Thank you.

David Luci

Sure. So post readout, there’d be a number of immediate steps that we will take either directly or to our vendors. Two of the steps would be to redo the market research in the US and in Europe and the pricing independent pricing studies redo them with the new factual data from the Phase 3 program. So, that would be done right away.

Business development activities would also kick into high gear and we would be doing market research and pricing research in Japan right away as well. We would also start our R&D program right away in Japan preparing for a meeting with the MHLW which would occur in the first half of '17 after we complete some preliminary work that’s required.

So other than that we would be working on building out our commercial infrastructure right away as well and we’d be doing all of that while the R&D team is putting together the final study report and continuing to put together the new drug application. So we would hope to file in the first half of '17 for approval with the FDA and with the European medicines agency.

And once filed we’d on a six-month clock in the US and a 10 month clock in Europe.

Daniel Sanchez

Thank you.

Operator

And ladies and gentlemen, this will conclude the question-and-answer session. I would like to turn the conference back over to Mr. David Luci for any closing remarks.

David Luci

Thank you all for your participation in today's call and we look forward to talking with you soon with our clinical data.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

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