BioPharmX's (BPMX) Q4 2017 Results - Earnings Call Transcript

| About: BioPharmX Corporation (BPMX)
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BioPharmX Corporation (NYSEMKT:BPMX) Q4 2016 Earnings Conference Call March 23, 2017 4:30 PM ET

Executives

Greg Kitchener - CFO

Anja Krammer - President and Co-Founder

Analysts

Scott Henry - ROTH Capital

Anthony Vendetti - Maxim Group

Sean Lee - H.C. Wainwright

Operator

Good day everyone, and welcome to the Fourth Quarter and Full-Year 2017 Earnings Conference Call. All participants will in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that the event is being recorded today.

I'd now like to turn the conference over to Greg Kitchener, CFO. Please go ahead.

Greg Kitchener

Thank you for participating in today's call. Joining me today is AnjaKrammer, BioPharmX President and Co-Founder. Earlier today BioPharmX released financial results for the fourth quarter and year ended January 31, 2017. If you have not received this news release or if you would like to be added to the Company's distribution list please send an email to investors@biopharmx.com. Today's conference call is being broadcast live through an audio webcast and a webcast replay of the call will be available later today at biopharmx.com.

During today's call BioPharmX will make forward-looking statements as to our BPX-01 clinical trials including sufficiency and use of funds raised, timings and efficacy endpoints thereof to safety, efficacy and projected development of BPX-01, expectations regarding additional studies, our Violet products in discussions related thereto, development of other products in our pipeline and other strategic and financial matters, because such statements deal with future events, actual results may differ materially from those projected in the forward-looking statements.

Factors that could cause actual results to differ from those in the forward-looking statements include the timing and effectiveness of our BPX-01 studies and other risks and uncertainties associated with the process of discovering, developing and commercializing drug candidates that are safe and effective for use as human therapeutics. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements can be found on our Annual Report on Form 10-K, Form 10-Q and other filings with the US Securities and Exchange Commission, as well as in today's press release.

The forward-looking statements provided during this call are valid only as of today's date March 23, 2017 and BioPharmX assumes no obligation to publicly update these forward-looking statements. During the call, BioPharmX will discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles. These non-GAAP measures are not intended to be considered in isolation form or as substitute for or superior to our GAAP results and we encourage you to consider all measures when analyzing our performance. BioPharmX management uses this non-GAAP information internally to evaluate its ongoing business, operational performance and cash requirements and believe these non-GAAP measure are useful to investors as they provide the same basis for evaluation of BioPharmX's performance as implied by management. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in today's press release made available on our website at www.biopharmx.com.

With that, I'd like to turn the call over to BioPharmX's President and Co-Founder Anja Krammer, Anja?

Anja Krammer

Thank you, Greg. Good afternoon and thank you for joining us today. 2016 was a very productive year for BioPharmX as we made significant progress toward our goal of becoming a leading dermatological specialty pharmaceutical company. I'd like to spend a few minutes reflecting on some of the accomplishments of the past year. We advanced our BPX-01program, our unique topical gel formulation of minocycline. We successfully concluded our Phase 2a trial and moved directly into a Phase 2b. The Phase 2a results showed topical gel did what we expected it to do, effectively treat acne without entering the blood stream. We look forward to getting the Phase 2b results soon and our plan is to enter Phase 3 in the fall. We presented scientific research at 12 conferences in the United States and Europe which suggests that BPX-01 delivered both antibacterial and anti-inflammatory benefits in the treatment of acne. And that BPX-01 effectively targets P acne in the skin without the systemic side effects of oral minocycline. We continue to strengthen our relationship with thought leaders in the dermatology community including establishment of a therapeutic dermatology medical advisory board. The board which is comprised of seven prominent dermatologists supported our efforts to broaden awareness about the need for effective topical treatments for acne.

As a result, BioPharmX and BPX-01 are receiving increased attention within the dermatology community. For example, most recently BioPharmX and BPX-01 were cited at nine podium presentations at the 2017 Annual Meeting of the American Academy of Dermatology, raising awareness about the need for new treatments and the potential for a new generation of acne treatments and standard of care. We also added a new industry talent to our team with biotech veteran Greg Vontz joining us as an Independent Director on our board. And finally we attracted new investors and renewed support from existing shareholders with a successful equity offering that will support completion of our Phase 2b clinical trials for BPX-01 and help advance other products in the pipeline. We believe these achievements position as well for the future and have even higher expectations for 2017. As you would expect our main priority in the near term is to advance our BPX-01 clinical trial program. As I mentioned, Phase 2b results should be available in the next few months, so let we take a few minutes to review the BPX-01 clinical program data.

BPX-01 is currently being evaluated in a phase 2b dose ranging study comparing efficacy of a 1% dose of minocycline, a 2% dose and our vehicle. It is a 12-week study in 225 patients aged nine to 40 with 20 to 60 lesions and Investigator's Global Assessment or IGA, a score of three or four which is moderate to severe baseline. Our primary efficacy endpoint is the mean change in inflammatory lesions compared to baseline at week 12. The secondary endpoint is the proportion of subject with at least a two grade reduction in IGA score of clear to mostly clear. We've also measured safety and tolerability including cutaneous effects, such as scaling, itching, redness as well as overall improvement as determined by the patient and the clinician. We announced that enrollment in the Phase 2b was completed in early January which means we are on track to report our topline results in second quarter. Assuming the outcome is positive, we will then meet with the FDA and anticipate that our Phase 3 trial will begin sometime in our fiscal third quarter. We've already made great strides in the design and overall planning for the Phase 3 program, so we can initiate it quickly pending the outcome of our Phase 2b trial and associated regulatory discussions we have at that point.

We remain extremely confident in the prospects of BPX-01for multiple reasons. It begins with the fact that BPX-01 is built around minocycline, one of the most proven and widely prescribed antibiotics used to treat acne today. This also enables us to follow the FDA 505(b)(2)pathway, relying on data produced by other organizations and reducing our required development investment. Especially our anhydrous hydrophilic topical delivery system has already shown that it allowed higher penetration and targeted delivery of minocycline at much lower concentrations in the oral form. It's also the first delivery system to stabilize minocycline in a water-based topical gel. It's hydrophilic, which means it is non-inclusive and non-oily. Unlike other products which suspend minocycline, BPX-01 fully solubilizes it, which is significantly improves its bioavailability. These characteristics give us confidence that the active ingredient is getting where it needs to go. In fact pre-clinical and Phase 2 data consistently suggests that BPX-01 effectively reaches acne in the dermis without any measurable quantity of minocycline to the bloodstream which means it does not pose the kind of side effects and risks common to oral minocycline. This low systemic exposure is a key component of the potentially improved safety profile for BPX-01.

Finally, Phase 2a exit survey data found that there was 100% satisfaction of BPX-01usability and tolerability. Patients and investigators like the feel of our product and the fact it is applied just once a day leading to a positive patient experience that we think will pave the way for commercial success. While BPX-01 for acne remains our primary focus, we're off externally excited about recent progress in our rosacea program. Using an active IND for BPX-01, we recently began a 12-week feasibility study of BPX-01, 1% for the treatment of the rosacea. At week four of the study, we will do a tolerability assessment and expect to be in a Phase 2/3 pivotal trial in the third quarter of this year. In addition to our minocycline product, our topical delivery system is suitable for other water sensitive APIs which includes tetracycline, retinoids and combination drugs. We expect to move one of those APIs into clinic later this year. We also continue to develop additional dermatology focused delivery systems including our injectable and microencapsulation platform.

With that I like to turn the call over to BioPharmX's CFO Greg Kitchener for a review of our financial results. Greg?

Greg Kitchener

Thanks Anja. Starting with our fourth quarter financial results. Revenue was $15,000, gross margin was negative in the quarter and the year due to several onetime accounting charges related to Violet including an inventory reserve and the amortization of an intangible asset. Total GAAP operating expenses were $4.3 million during the quarter compared to $4.4 million during the prior year period. R&D increased $700,000 primarily due to increased expenditures for the company's clinical trials for BPX-01. Sales and marketing decreased $800,000 due to the reduction in advertising and promotional activities related to Violet. G&A was relatively flat. GAAP net loss for the fourth quarter was $5.2 million or $0.09 per share compared to a GAAP net loss of $4.6 million or $0.19 per share during the prior-year period. Excluding stock-based compensation expense, amortization of purchased intangible assets and the change in the fair value of warrant liabilities, non-GAAP net loss for the fourth quarter was $4.4 million or $0.08 per share compared to the non-GAAP net loss of $4.2 million or $0.18 per share last year. Our weighted average shares outstanding was 56.8 million shares for the fourth quarter reflecting the capital raise we completed in November.

Continuing with the full-year financial results, revenue for Violet was $100,000. Total operating expenses on a GAAP basis were $18.0 million for the year compared to $15.0 million the prior year, primarily due to increased expenditures for the company's clinical trials for BPX-01 offset by reduction in marketing and commercialization costs for Violet. GAAP net loss for the year was $18.5 million or $0.52 per share compared to a GAAP net loss of $16.0 million or $0.89 per share during the prior year. Excluding stock-based compensation expense, the change in fair value of warrant liabilities, a one-time expense related to the modification of warrants and amortization of purchase tangible assets non-GAAP net loss for the year was $17.1 million or $0.48 per share compared to the net loss of $14.3 million or $0.80 per share during the prior year. Our weighted average shares outstanding was 35.8 million shares for the full year. Cash and cash equivalents as of January 31, was $6.5 million. As Anja mentioned, this gives us sufficient cash of fund our Phase 2b clinical trial which we will be completing in Q2.

Lastly, next week we will hold a special proxy meeting where we'll ask investors to increase the number of authorized shares and to approve a potential reverse split. We are increasing our authorized shares to a more typical level for a clinical stage life science company. And let me emphasize we would only implement a reverse stock split after careful consideration and currently there is no imminent plan to do so. This authorization simply gives us flexibility over the next 12 months as we plan for the future. We thank you for support and ongoing interest in the company.

At this point we would like to open it up for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] And the first question comes from Scott Henry with ROTH Capital. Please go ahead with your question.

Scott Henry

Couple of questions. First, obviously, we're all looking for the BPX-01 data. It sounds like if enrolment completed in early January, the last patient visit would probably be early April, data readout perhaps May, is that a reasonable way to think of it?

Anja Krammer

Yes. Scott, it is pretty reasonable. I mean, we're looking at clearly Q2, as we said that somewhere around end of May, early June would be a good window.

Scott Henry

Okay. And then generally on, when you talk about quarters, are you talking calendar year or fiscal year? I know it's probably as confusing for you as it is for me?

Greg Kitchener

Yes. It's a little confusing, because our quarters are staggered by a month. So our Q4 ended at the end of January. So typically when we refer two quarters, we are talking our fiscal quarters. So our Q2 would be May, June and July.

Scott Henry

Okay. That's helpful. Now, after we get the data readout, would you expect to have to meet with the FDA prior to starting the Phase3?

Anja Krammer

Yeah. It's a great question, Scott. So our intent is that we would have our data readout and we would request an end of Phase 2b meeting with FDA. They have a very specific period of time. It's typically a thirty day turnaround on granting those. So we would have that meeting, discuss our intent for Phase 3 and then pending the outcome of that meeting, would be free and clear then to move into a Phase 3.

Scott Henry

Okay. Great. And then just a couple of very quick numbers questions for Greg. Greg, where would you expect shares outstanding to be at the end of the first quarter, I just want to make sure I'm adjusting correctly for the transaction?

Greg Kitchener

So factoring out the averaging of the transaction, we ended Q1 with about 67 - excuse me, ended Q4 with our 67.7 million shares. So that would be the number I'd expect for Q1.

Scott Henry

Okay. Great. And then any directional guidance on spending, I would expect it would be, I mean, obviously, contingent on positive data, I would expect we'd see a significant increase in R&D, G&A just general upward trend and any thoughts on that and as well the sales and marketing line, I feel that's kind of coming down. That was pretty heavy in the beginning of 2017.

Greg Kitchener

Yeah. I mean we don't explicitly guide on our OpEx, but I can tell you in general terms that in the first half of the year, we expect R&D, G&A and sales and marketing to remain fairly flat with where Q4 was. As you mentioned, our sales and marketing has decreased over the course of last year, but we ended the year with about the right level of sales and marketing that goes to activities that are more in corporate nature than specific to Violet as we mentioned. G&A, we expect to remain fairly flat. R&D, we're going to expect an increase materially in the first half of the year. I mean, obviously as we enter the Phase 3 trial in the second half of the year, we would expect that to increase, as we go through that enrollment process.

Operator

The next questioner today is Anthony Vendetti with Maxim Group. Please go ahead with your question.

Anthony Vendetti

Yes. Just a quick follow-up on the fiscal year. So this, I know, it's off by a month, but technically, this was your fiscal year ending '17 right and now we're moving into fiscal '18 quarters. Is that correct?

Greg Kitchener

That is correct, Anthony. Yes.

Anthony Vendetti

Okay. So one of the reasons for the negative gross margin, Greg, you pointed out inventory reserve for filing and then amortization of intangible asset, can you break that out, how much was for the Violet reserve and how much was for the intangible asset?

Greg Kitchener

Anthony, we're not disclosing that at this point in time. I can tell you that it's not - neither one of those factors would be significant portion of that. Roughly speaking, it was sort of split equally.

Anthony Vendetti

Okay. And clearly with the focus on BPMX-01 and now rosacea, it's safe to say that the de-emphasis on Violet will continue through 2017, 2018, correct?

Greg Kitchener

That's correct. Right. So we've basically minimized all spending on Violet for advertising and commercialization efforts. The amount of sales and marketing spending we're doing right now is for general corporate advertising, branding promotions and that sort of thing. So we'd expect that level to increase in the near term and we update you on that in the future if that number were to change.

Anthony Vendetti

Okay. And then Anja, if you could talk a little bit about the rosacea program, the study, how that dovetails with what you're doing with acne and any additional costs or is it just incremental costs associated with the rosacea study that we should be cognizant of going forward?

Anja Krammer

Yeah. And I appreciate that you asked Anthony. So the current study that's open on rosacea is an open label study. It's opened for our, what we call up 220 patients, we don't have to go to that for enrolment, but that's what it's open to. It's a 12 week once daily treatment of the BPX 1% dose drug and the intent is for us to do an assessment as we're calling it, a four week to really just measure the tolerability of it. We see no reason why it wouldn't be, but we wanted to put it through that rigor of an assessment. And then at that check-in, we would make the decision to be able to go directly into a Phase 2/3 pivotal trial, which that is to kind of clarify further one would really set us up to being the first Phase 3 trial for that rosacea program. And at that point, we would be moving that into a multi-center 12-week randomized double-blind, targeting somewhere in the neighborhood of 200 patients in that trial and that would also commence in the fall.

So your second part of the question on spending, because the drug that we're using here is the BPX-01 drug, so we do have synergies across the program, because it is the same drug formulation as our acne program. So the cost there is obviously mitigated and then you would just expect the incremental spend on the clinical enrollment side.

Anthony Vendetti

Okay. And obviously rosacea isn't as larger market as acne, but you believe that this would be the first type of product that would use topical minocycline for rosacea that could have a positive outcome. Is that the play here on rosacea?

Anja Krammer

Yeah. We do and we believe that at our dose and with the real benefit of our drug delivery system, so kind of maybe to remind the vehicle that we have has that nice benefit, I'll call it, on the cutaneous side for skin. So we believe that we could see some of that same benefit moving us over into our rosacea program. So we think there's a nice opportunity and we do see from what the clinicians and scripting data they'd show us, because there is a lot of off-label use of current acne prescriptions out there that there is maybe another third of the market, at least a third of the size of acne. So it's not too small, it's a pretty significant size when you add it to what the current program is.

Operator

[Operator Instructions] And the next question is from Sean Lee with H.C. Wainwright. Please go ahead with your question.

Sean Lee

Thanks, guys for taking my question. I just have a couple of clarification on the programs if you could. For the acne study, if the Phase 2b report is positive, would you be considering the ex-US territories or perhaps partnerships or is the focus more on getting the Phase 3 done first?

Anja Krammer

Yeah. That's a great question, Sean. Thank you for joining. We right now have the intent to focus on the US Phase 3, but that's not to say that we aren't exploring the further broader US market because they do add a lot of incremental value for the company and we're always also open to strategic discussions in that area. So as we progress the program to start in Phase 3, we would also entertain that as well.

Sean Lee

Great. My second question is on the rosacea program, assuming the first Phase 3 feasibility study reports well as tolerability, maybe size of efficacy for the additional, to bring it further forward, would you be doing that independently or would you be seeking a partner for it?

Anja Krammer

So we would definitely run this, what I'll call the Phase 2/3 pivotal trial. So we would work on that clinical step, because it's fairly near term to us, assuming this feasibility progresses. And then I think as I've mentioned even with our acne program, we're going to continue to proceed in that trial, but we're always open on the commercial side to strategic partnerships, so that is absolutely something that we always would entertain.

Sean Lee

Thank you for clarifying that. And my final question is, I think you mentioned there was a new product of API coming later this year, would to be able to provide a little bit more color on that?

Anja Krammer

Maybe a little general kind of clarification. So off this delivery system, hydrophilic topical delivery, what we've so far shared is that we're able to work across several classes of drugs, one being the tetracycline families, one of which of those is minocycline as well as retinoids and then combination therapy thereof. So we're not specifically saying which APIs, but across that entire landscape, we have quite a few options and we have, I would say, validated and proof-of-concept already in research and in pre-clinical work that it works in several of those very well and that we'll have some choices about which ones to advance and that will be more based on the kind of results we start to see here very near term in the final pre-clinical.

Sean Lee

Great. Looking forward to and -

Anja Krammer

Yes. And Sean, and I will say this and one extra point to maybe elaborate, we've - in the past, at least in acne, I hope the community would agree that we've published and put out as much data really as soon as we have it as possible and so what you can expect from us on other API is that as we have data and have it ready for peer review and publishing and such, you'll see us push that out because we're really happy about the scientific advancement and the innovation that we're making.

Operator

The next questioner today is Brian Brooks, a private investor. Please go ahead with your question.

Unidentified Analyst

Yes. At a recent conference, you had mentioned that there would be no potential dilution before data would be released. Look at the two numbers now, it looks like, it would be close if you were to release data at the end of May, early June timeframe. Can you reconfirm that there will be no dilution before any data release?

Greg Kitchener

Brian, thanks for your question. As we mentioned, we ended the quarter with 6.5 million of cash. We believe that is sufficient capital to get us through our Phase 2b data readout, which Anja alluded to with sometime in Q2. Of course, we would always consider opportunistic capital raises, but at this point in time, we believe we have sufficient capital to fund that Phase 2b clinical trial and we feel like that's the best path for at this point in time.

Operator

It looks like we have no further question. So this will conclude the question-and-answer session. I would like to turn the conference back over to Anja Krammer for any closing remarks.

Anja Krammer

Great. So our company was built on a strategy designed to address unmet medical needs by giving really new utility to proven drugs. We believe we've made important progress towards reaching that goal and really as of becoming a leading dermatological specialty pharmaceutical company. So we're very optimistic that this year we'll deliver new successes for the company and we believe that's going to hold true also for our shareholders. So we look forward to providing you updates on our progress during our next earnings call and I would like to thank everyone for joining us today. Thank you very much.

Operator

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

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