Edge Therapeutics' (EDGE) CEO Brian Leuthner on Q3 2017 Results - Earnings Call Transcript

Edge Therapeutics, Inc. (EDGE) Q3 2017 Earnings Conference Call November 1, 2017 8:30 AM ET

Executives

Gregory Gin - IR

Brian Leuthner - Co-Founder, CEO, President and Director

Andrew Saik - Chief Financial Officer

Albert Marchio - Interim CFO and Chief Accounting & Administrative Officer

Analysts

Jason Butler - JMP Securities LLC

Barbara Kotei - Crédit Suisse

Paul Matteis - Leerink Partners LLC

Antonio Arce - H.C. Wainwright & Co

Operator

Good day, ladies and gentlemen. Welcome to the Edge Therapeutics Third Quarter 2017 Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded. I'll now introduce your host for today's conference, Greg Gin of Edge Therapeutics. Please go ahead.

Gregory Gin

Thank you, Sonia. Good morning, everyone, and thank you for joining us today. Today, we reported our third quarter 2017 financial results and recent corporate highlights. Joining me this morning are Brian Leuthner, President and CEO; Bert Marchio, Chief Accounting and Administrative Officer; Andrew Saik, our new Chief Financial Officer whose appointment was announced in this morning's press release. Brian, Bert and Andrew will make brief prepared remarks. And then we'll open up the call for Q&A.

Before we begin, let me note that the press release we issued this morning is available on our website at www.edgetherapeutics.com. In addition, the live webcast of this call is also available on our website. To access the webcast, click the Investors' link on the top navigation menu, then click on News & Events, then Events & Presentations on the left navigation side. There will be a taped replay of this call, which will be available approximately 2 hours after the call's conclusion and will remain available for 7 days. The operator will provide the replay instructions at the end of today's call.

Today's conference call may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. To the extent that any statements made on this call contain information that is not historical, these statements are forward-looking statements and are not guarantees of future performance and involve risks and uncertainties, including those noted in this morning's press release and Edge's filings with the SEC.

Investors, potential investors and other listeners are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. Actual results may differ materially from those projected in the forward-looking statements. Edge specifically disclaims any intent or obligation to update these forward-looking statements, except as required by law.

And with that, I will now turn the call over to Brian.

Brian Leuthner

Thanks, Greg, and good morning, everyone. Thank you for joining us, and thanks as well for your interest in Edge Therapeutics. As Greg mentioned, I'll start with a brief overview of our third quarter progress, then discuss the appointment of Andrew Saik as our new CFO. And then I'll hand the call over to Bert for a review of the financial results.

This is an exciting time for Edge as we prepare operationally for what we hope will be a positive effect of EG-1962 in our NEWTON 2 study on improving outcomes for patients with aneurysmal subarachnoid hemorrhage. We expect top line results from the full Phase III NEWTON 2 study by late 2018, unless the study is stopped earlier due to demonstration of efficacy at a preplanned interim data readout.

As we've discussed before, EG-1962 was developed to test the hypothesis that higher concentrations of nimodipine administered directly into the cerebral spinal fluid in the brain would provide superior efficacy compared to systemic administration of oral nimodipine. We've now shown both in nonclinical studies and in the NEWTON study, our Phase II study, that EG-1962, using our proprietary Precisa development platform, delivers 100 to 1,000x the concentration of nimodipine directly to the site of injury in the brain with sustained delivery over 21 days versus that of current standard of care oral nimodipine.

These results support the proposition that EG-1962 has the potential to fundamentally transform the management of aneurysmal subarachnoid hemorrhage and dramatically improve patient outcome in this very vulnerable patient population.

Now although we believe that oral nimodipine, while shown to be effective at improving patient outcomes following aneurysmal subarachnoid hemorrhage, provides limited efficacy due to suboptimal drug exposure in the brain. In fact, it's virtually impossible to get similar EG-1962-type concentrations in nimodipine into the brain with oral nimodipine without causing dose-limiting and potentially life-threatening hypotension.

So regarding the NEWTON 2 study, our top priority continues to be focusing on the execution of the study, and we currently remain on track. In the third quarter, we continued to achieve meaningful progress. Our progress was highlighted by the randomization of the 150th patient in September. This achievement of this milestone triggers preparation for a prespecified futility analysis by the study's external independent Data Monitoring Committee, what we call the DMC. Once the first 150 patients in the NEWTON 2 study complete their day 90 follow-up assessments, the clinical data package will be compiled and then submitted to the study's DMC. We anticipate that the DMC will conduct the futility analysis by the end of 2017.

Now for that analysis, the DMC can recommend 1 of 2 possible outcomes for the analysis, one, continue the study; or two, stop the study due to futility or an unexpected safety concern. The futility analysis doesn't make any assessment for efficacy, so there's no statistical penalty for this analysis. After we learn the results of the futility analysis at the end of this year, we'll make a public communication.

Now in early 2018, we anticipate reporting top line efficacy results from the formal interim analysis for efficacy upon completion of the day 90 follow-up visit of the first 210 patients. Now it's important to note, and I really want to emphasize this, that there's a higher threshold for stopping the study for overwhelming efficacy at this interim time point. For the study to be stopped early, the results from the interim analysis would need to be greater than about 20% absolute difference in the proportion of favorable outcomes among EG-1962 treated patients versus patients receiving oral nimodipine.

Now in this case, we would meet with the FDA and other health authorities to discuss submission of the market application. If this level of efficacy does not materialize, the study could continue to enroll up to 374 patients with full data seeking to achieve between, say, at least a minimum of a 10% to 15% absolute difference in the proportion of favorable outcomes versus oral nimodipine. Now in this scenario, as I previously mentioned, we expect the top line results from the full Phase III NEWTON 2 study in late 2018.

Now a key point when we talked about the absolute differences that we need to show is that we've spoken, over the last 8 years or so, to hundreds of our target customers, those being the neurosurgeons and neurointensivists. And to them, a clinically meaningful benefit is around a 10% absolute difference in outcome. So the sample size of our NEWTON 2 study is designed to detect that effect.

The Phase III NEWTON 2 study is being conducted at about 75 sites in North America, Europe, Israel and Australasia, and it's being developed under U.S. and EU orphan drug and U.S. Fast Track designations. The design of the study was informed by three key factors, first, our encouraging Phase II study results that we saw in the NEWTON study; second, input from thought leaders in neurosurgery and neurocritical care; and third, discussions with the regulators.

Now as you may recall, we designed the Phase III study to mirror the key design elements from the Phase II NEWTON study, which was a randomized, controlled, multicenter study of 73 patients. So that is, we use the same patient population WFNS 2 through 4s, and patients had to have an EVD, same comparator, EG-1962 versus standard of care oral nimodipine, and the same assessment for efficacy. That's the GOS-E scale with a favorable outcome defined by a score of 6 through 8. We believe that this approach derisks the Phase III study as we aim to reproduce the positive efficacy and safety results seen in the Phase II study.

Now we expect the results of the NEWTON 2 study, if positive, to form the basis for a marketing application to the U.S. FDA and other global health regulatory authorities for the approval of EG-1962 for the treatment of aneurysmal subarachnoid hemorrhage.

In preparation for a potential launch of 62 -- EG-1962, and as our health economic outcome research progresses, we continue to gain a better understanding regarding the economic burden of aneurysmal subarachnoid hemorrhage patients. In fact, at the Neurocritical Care Society Annual Meeting in October, we presented a poster highlighting new retrospective claims-based health economic data. The data showed that the per-patient hospital charges of aneurysmal subarachnoid hemorrhage patients represent a high economic burden for U.S. hospitals.

In addition, the analysis also showed that the aneurysmal subarachnoid hemorrhage patient population that's currently being studied in the NEWTON 2 study had the highest per-patient hospital charges, exceeding $400,000 per patient, and experienced the longest hospitalizations of all aneurysmal subarachnoid hemorrhage patients. So specifically, these are patients who require an external ventricular drain, EVD, and undergo either neurosurgical micro clipping or endovascular coiling for repair of their aneurysm. Now we're continuing to better understand the aneurysmal subarachnoid hemorrhage treatment cost, the current utilization of oral nimodipine in patients with subarachnoid hemorrhage and also the patient segments within the full subarachnoid hemorrhage population. So we continue to be on top of that.

So lastly, to continue on a theme of preparing for a potentially positive data readout in 2018, we continued expansion of the commercial expertise represented on our leadership team with the appointment of Rose Crane to our Board of Directors. Rose is a former executive at Johnson & Johnson and Bristol-Myers Squibb, and she brings over 30 years of commercial and operational expertise to the board. And Rose adds just a valuable new perspective as we plan to lay the groundwork for a potential commercial launch of EG-1962.

Now changing topic slightly. When our co-Founder, Dr. R. Loch Macdonald, and I started Edge in 2009, we believed that our approach to using our Precisa development platform to create EG-1962 would be viewed as a highly innovative approach to address a major unmet medical need in the neurosurgical community. And as external validation of our belief, Edge was recently selected as 1 of 3 finalists for Innovator of the Year award for EG-1962 during the 2017 Congress of Neurological Surgeons Annual Meeting last month. So again, this was just a nice validation of what we're trying to do here, truly can potentially make a difference.

And then finally, we announced in a separate press release this morning that we appointed Andrew Saik as our new CFO. Andrew joined Edge effectively yesterday. So some of you may know Andrew from his time as CFO of Auxilium Pharmaceuticals, where he led -- or helped lead the execution of Auxilium's growth strategy. Andrew has a successful track record in multiple areas, including shaping financial strategy, leading successful M&A transactions and managing global commercial financial operations that have helped add significantly to shareholder value. So we believe Andrew further strengthens our management team as we continue the plan for potential global commercialization of EG-1962.

So on behalf of everyone at Edge, I'd like to welcome Andrew. So Andrew, would you like to take a moment and, first call here, like to say a few words?

Andrew Saik

Yes. Thanks, Brian, and good morning, everyone. I'm thrilled to have this opportunity to join Edge at such an exciting time. I'm greatly looking forward to contributing to the company's future success and working with the team to help Edge maintain a strong financial position, so that we're ready for a potential commercialization. Also I look forward to meeting investors and analysts over the coming months and working with the investment community going forward.

Brian Leuthner

Great. Thank you, Andrew. Great to have you onboard. Also at this time, though, I really want to recognize Bert Marchio, who's done an exceptional job for Edge since stepping in to fill the CFO role in March. Bert will be helping with the CFO transition and will continue to serve in his current role as Chief Accounting and Administrative Officer. So with that, I'll now turn the call over to Bert to discuss our financial results. Bert?

Albert Marchio

Thank you, Brian. As of September 30, 2017, cash, cash equivalents and marketable securities were $97.3 million compared to $106.4 million at December 31, 2016. Our cash burn in the third quarter of $11.4 million and year-to-date of approximately $31.5 million was in line with our projections. The year-to-date burn reflects the $17.4 million in net proceeds from our registered direct stock sale and $5 million in debt proceeds, both of which took place in the second quarter.

Research and development expenses for the third quarter were $6.9 million, inclusive of approximately $0.7 million of noncash stock compensation expenses. R&D expenses in the third quarter reflected increased spending, primarily due to an increase in external expenses related to EG-1962 clinical development, personnel-related costs related to the NEWTON 2 study and other R&D expenses.

General and administrative expenses were $4 million for the third quarter, including approximately $0.8 million of noncash stock compensation expense. G&A spending during the third quarter largely reflected increased personnel-related costs, legal and professional fees. We reported a net loss of $11.3 million in the third quarter. As of October 31, we had 30.9 million shares outstanding.

As we look ahead, we expect the operating expenses to increase as we continue enrolling subjects on our NEWTON 2 study of EG-1962 and as we continue to advance our other development programs and build our infrastructure. Based on our current plans, we expect our cash and cash equivalents to be sufficient to fund our operations through the full data readout from our NEWTON 2 study, which is anticipated to occur in late 2018.

And now I'll turn it back over to Brian.

Brian Leuthner

Thanks, Bert. So in closing, we expect 2018 to be a really exciting year here at Edge. And we believe that EG-1962 has the potential to improve patient outcomes over the current standard of care and really change the way that patients with aneurysmal subarachnoid hemorrhage are treated, and we look forward to sharing the results with you in the coming months.

So thank you, again, for joining us today. We appreciate your continued support. And operator, we're ready to take questions now.

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question comes from Jason Butler of JMP Securities.

Jason Butler

Brian, first one, just in terms of the futility analysis, can you just remind us of the safety profile that you saw for 1962 in the NEWTON study?

Brian Leuthner

Sure. So thanks, Jason, for the question. And safety profile is that we saw no safety issues that precluded us from going to -- all the way to the highest dose at 1,200 milligrams. So it certainly gives us comfort that we are taking a drug, nimodipine, that's been used for many years. And we were able to -- that gives us confidence. And again, we were able to go up to the highest dose. And clearly, the DMC had no concerns in the NEWTON study, in the Phase II study. So again, that's kind of where we are from that perspective. And right now -- and currently, right now, for the NEWTON 2 study, we have -- the DMC hasn't come back with any concerns to the state. So we're pretty comfortable going into the futility analysis.

Jason Butler

Great. And looking forward to the interim, are you able to give us any color on whether you have already enrolled the 210 patient or how close you are to that? Or even more broadly, just what the enrollment rate has been in recent months.

Brian Leuthner

Yes. So enrollment, as you know, we've never given out patient updates. So yes, we did give out for the first time the patient update that we did enroll the 150th patient in September. And I guess, we're going to hold back on giving any further updates on numbers. But what I can say is, we are on track for the early 2018 reporting out of the 210. And we're on track to do full study enrollment by the end of 2018. So clearly, '18 is going to be a really exciting year for us here at Edge.

Operator

Our next question comes from Vamil Divan of Crédit Suisse.

Barbara Kotei

This is actually Barbara for Vamil. So my first question is on the patient split in the U.S. versus ex-U.S. So I believe on a previous earnings call, you said that you expect to enroll more patients in the U.S. versus ex-U.S. I was just wondering if you are seeing this in the numbers now that you've disclosed that you've enrolled your 150th patient.

Brian Leuthner

Yes. So the practicality of the matter is that 210, let's say, you're at 150 and 210, we started with the U.S. sites and the North American sites early on. So just by and large, that's why we're going to have more patients from a North American perspective, certainly up to 210. I think as we -- if the study goes all the way through 74, I think it'll be closer to an even distribution. But right now, I think, if I recall, somewhere around 50% to 60%, 70% are the North American patients and then ex-U.S. But as the study continues on, the European centers are starting to enroll and the Israeli centers as well as the Australasia centers.

Barbara Kotei

Okay. And just a quick follow-up on that. Anything you're seeing in the defense with enrollment rates? Are they similar? Or are they different?

Brian Leuthner

No I think the nice thing is all of these centers throughout the world are top academic centers. So the treatments are -- the way they treat the patients, the way they monitor them are very similar. And I think the other thing is the clinical team is really focused on the quality of the patients, working with the site, doing the training of the sites to make sure that we're really standardizing the enrollment of the patients, so that we can mirror as closely as we can those patients that were in the Phase II study. I mentioned earlier, on last call, I think, we've got a 24/7 medical monitoring team answering questions from all over the world all the time. So that's really what we're focused on, is the quality of the patients that were enrolling in the study.

Barbara Kotei

And my last question is, can you remind us what you were thinking about pricing? Any updates on that? And how does the recent health economic data impact your thinking?

Brian Leuthner

Yes. So well -- yes, that really goes to the whole thing on commercialization and everything. And just to assure you, from a team standpoint, I was thinking the other day. So my personal background is I've been in commercial. So we've -- I've been in charge either of selling, marketing or consulting to companies over 15 hospital products. Dan Brennan, Justin Zamirowski, who are heading up our commercial team, have even more. So we've been going out and doing some preliminary research with payers and hospitals from that perspective. So we do believe if we win and show superiority to oral nimodipine that we'll get a premium price. I think couple of the other key things that people have to think about, as far as pricing and reimbursement in this hospital marketplace is, one, this is either an orphan or an ultra-orphan condition depending on where you want to cut point.

The other big benefit we have is we are going head to head against the current standard of care. And I think the other thing to think about is, this is an innovative product and it addresses an unmet medical need. So if you think of all those things in there, every product in the hospital environment for the last 30 years, I know, have gotten a premium price. But ultimately, the pricing will depend on the final data that we see from the Phase III. Well, that gives us the confidence that we're doing everything possible to prepare to get a premium price within the hospital marketplace.

Operator

[Operator Instructions]. Our next question comes from Paul Matteis of Leerink.

Paul Matteis

I have three. The first question, Brian, is what are the scenarios for the 1Q interim analysis? And is the lower the final sample size to about 300-patient scenario still on the table?

Brian Leuthner

All right. So what we've got here is, as you know, from a scenario of the first interim analysis, we've got 210 patients. We need to see somewhere around the 20% delta. We know that for sure. We're very confident and have agreement from FDA on 210 subjects. And then the 374 full study enrollment, somewhere in the 10% range or 10% to 15%. However, we're in final discussions with the FDA on whether there could be another look between 210 and 374 where we could win on the efficacy. So that's kind of the update. And as we get more clarification on FDA on that potential interim, we'll communicate it. But right now, I can confidently say 210, for sure, and if -- and 374.

Paul Matteis

Okay. And then just -- can I ask a quick extra question on that potential third scenario that you're working on? If you add another look between 210 and 374, how much does that change the actual effect size you need to see at 374 to win? I think you've talked about 10% to 15%. Could that change meaningfully if you add a second interim look?

Brian Leuthner

No. In fact, some of -- when I've given you the alphas and the p-values, we actually, in some ways, anticipate that we're going to do that middle look. So if we don't do that middle look, actually, our p-values go up a little bit.

Paul Matteis

Okay. All right. And then a couple other just quicker ones. I was wondering if you could kind of speak to, either quantitatively or qualitatively, what proportion of WFNS 2 versus 4 patients you're seeing in the Phase III given that the effect size in Phase II was so much bigger in WFNS 2. And then just one question on the model. We noticed that spending was lower this quarter. We're wondering why that might be and whether or not that's a go-forward trend or you expect a reversion to the 2Q run rate.

Brian Leuthner

All right. So first, I'll answer the question on the distribution of WFNS 2s and 3s and 4s because that's really how we look at it. So I think, if you recall in the NEWTON study, the Phase II study, I think we're there, somewhere at 45% to 50% 2s and then 50% to 55% 3s and 4s. We're seeing that same trend in NEWTON 3 -- or excuse me, NEWTON 2 study. And as I've mentioned in the past, the most important thing that we're doing in this study, because we've got larger number, are that we're stratifying by WFNS. So that the plan would be to have the equal proportion in both groups.

Paul Matteis

Yes, yes. Okay. Got it. And then Brian, would you mind just clarifying that one question around OpEx this quarter and run rate going forward?

Brian Leuthner

Yes, I'm going to throw that over to Bert.

Albert Marchio

Paul, yes. Yes, in terms of the slower spend in Q3, our European -- our non-U.S. sites really took a little longer to get up and running than we had originally anticipated. Now that they're up and running, I don't see that lower spend going forward. It's more of a timing shift from Q3 to Q4 and probably a little into Q1 next year.

Operator

[Operator Instructions]. Our next question comes from Ed Arce of H.C. Wainwright.

Antonio Arce

So just a couple questions. On this threshold to stop early that you mentioned, the 20% absolute difference, I was wondering if you could remind us some of the details that go into that calculation, how that's actually calculated. And around that, if there are any secondary measurements, secondary endpoints that, perhaps, could buttress that result if, perhaps, say, the difference ends up being close, like 18% or 19%, and how you think about perhaps still meeting that threshold in that potential scenario.

Brian Leuthner

Okay, Ed. So let me answer that second question first. So the NEWTON 2 study is powered to show a difference in the primary endpoint. So it's powered to show a difference in the secondary or other endpoints. So yes, I just want to kind of be clear. Now some of the assumptions that go into the interim analysis are, when we designed the study, we want to keep power at 85%. So when we looked at that, we made the assumption that the oral nimodipine group would be doing 28% in our Phase III. So we had a few data points where essentially oral nimodipine did 28% in the NEWTON study. So we used that. So if we looked at that and said, "All right. At 210, what would we need to show?" That number is really around the 18% to 20% absolute difference in favorable outcome. So that's, that point there.

As you may recall, in the Phase II study, we did slightly over 30% from an absolute difference. What I really like to point people to, if we go all the way to 374, we need to show an absolute difference of around 10% to 15%. And that's the key that we've always kept in mind because we really believe that we can help patients with this drug. So as I mentioned earlier, if you go out and talk to doctors, and maybe you already have, the neurosurgeons and neurointensivists will say, "Look, if you can give me a 10% absolute difference, that means for every 10 patients in 30 years I haven't been able to help, make 1 in 10 be able to take care of themselves, go back to work." That was a major medical advancement. So that's really what we're focused on, is that 10% absolute difference where we think we can get a premium pricing. It's a major medical need for neurosurgeons, and that's what they see as a clinically meaningful benefit. And obviously, that would win statistically, so we would obviously bring that to the regulators. So that's kind of how we look at the interim and, let's say, the full data read with those absolute differences.

Antonio Arce

Okay. Then just one follow-up question around the presentation you're going to give on the claims data. Just wondering, given the over $400,000 annual cost that you presented with the current standard of care, how do you think about the individual components of that and how you can present a compelling pharmacoeconomic argument?

Brian Leuthner

Sure. Yes, so we have to look at this in many different ways. First of all, you've got the hospitals and the administration, and you've also got the payer. And some of them -- some of those needs are aligned and some of those are a little different. But if you look at our payer mix in our patients, the vast majority, upwards over 70% of our patients are commercial pay. So that's, first and foremost, one of the important things. The other is, we've got about 300-or-so hospitals that we're targeting because almost all of the patients get sent to the centers of excellence. So that's one perspective to think about. You've got an orphan or ultra-orphan drug, the majority of commercial pay. The other thing is what's driving this data when we presented. And what's driving it, for the most part, is ICU length of stay, hospital length of stay. When these people deteriorate, and many of them do, it's called rescue therapy. It's very expensive.

Time on mechanical ventilation, very expensive. Obviously, the procedure to secure the aneurysm, clip or coil. And then physician fees are another thing. That's actually not included in that $400,000. So if you look at our Phase II data, we reduced the ICU length of stay. We reduced hospital length of stay. So ICU length of stay is very important to a hospital because that means they have throughput in the ICU. They can take more patients from these feeder hospitals. They can bill more, so that's important. ICU or hospital length of stay, very important to the payer. We actually reduced mechanical ventilation in the NEWTON study. But we reduced rescue therapy, cut that in half or about more than 50%. So I think putting all of that together, plus these patients had a much better outcome, and then if you actually teased into our outcome data, almost 1/3 of our patients had a GOS-E of 8. That means they're basically back to normal working. I think if you look at both the hospital and the payer, we're going to have a very compelling health economic argument.

And the fact that we're going head-to-head against oral nimodipine, right, our strategy is very simple, if we're better, we're taking share. So that's how we look at things from a commercial perspective. And we're doing all of the things in the background to get ready if we hit at an interim analysis that we're ready to launch this commercial readiness and on other ways. But financially, we're preparing to go all the way up to 374. So long-winded answer, but hopefully, that outlines some of the things that we're doing here to prepare.

Operator

And ladies and gentlemen, this does conclude our question-and-answer session. I would now like to turn the call back over to Brian Leuthner for any further remarks.

Brian Leuthner

Thank you very much. And again, 2018 is a very exciting year. We've been doing this awhile. I know here, internally, the team's prepared. It's great to have Andrew onboard. And again, I clearly want to extend my thanks to Bert Marchio for filling in for these last 8 months. Bert's been with us, I think, employee #4 or 5. But we appreciate everyone listening in. We appreciate everyone's interest in Edge. And we'll continue to keep you updated as the data progresses. So thank you, again.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.