Corium International, Inc. (NASDAQ:CORI) Q1 2018 Earnings Conference Call February 8, 2018 5:00 PM ET
Robert Breuil - CFO
Peter Staple - President, CEO & Director
Oren Livnat - H.C. Wainwright & Co.
William Tanner - Cantor Fitzgerald & Co.
Stephen Brozak - WBB Securities
David Steinberg - Jefferies LLC
Good day, ladies and gentlemen, and welcome to Corium International's conference call for its first quarter of fiscal year 2018. [Operator Instructions]. And as a reminder, this conference will be recorded. I would now like to hand the conference over to Mr. Robert Breuil, Chief Financial Officer. Sir, you may begin.
Thank you, Sabrina. Good afternoon, and welcome to our conference call for the first quarter of fiscal year 2018. As a reminder, we have a September 30 fiscal year-end and our first quarter ended December 31, 2017. Joining me today on the call is Peter Staple, our President and Chief Executive Officer. Peter will begin with an overview of developments in our business, and I will discuss our financial results for the quarter. Our comments will be followed by a Q&A session.
During the course of today's call, we may make a number of forward-looking statements, including comments on our business and financing strategies; financial and operating performance and expectations; operating costs and expenses; product pipeline; clinical trial and regulatory timing and associated resource requirements; regulatory status, pathways and time lines for our development programs and those of our partners; the achievement of clinical and commercial milestones; the outlook for our products and those of our partners, our programs and potential partnerships; and the advancement of our technologies and our proprietary co-developed and partnered products and product candidates.
These forward-looking statements are based on assumptions that are subject to risks and uncertainties that could cause our actual results to differ significantly from those suggested by these statements. Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements.
Please refer to our Form 10-K filed with the SEC on December 29, 2017, for some of the important risk factors that could cause our actual results to differ materially from expectations, including any forward-looking statements made on this call. Except as required by law, we disclaim any obligation to publicly update or revise any forward-looking statements to account for or reflect events or circumstances that occur after this call.
I will now turn the call over to our President and CEO, Peter Staple. Peter?
Thank you, Bubba, and good afternoon and welcome, everyone. Since our last conference call, we've been building on the momentum of our Corplex Donepezil development program, and I'm pleased to review our progress with you. This program is tracking towards an NDA filing by the end of calendar 2018. Our product candidate is an innovative, once-weekly patch that delivers a sustained and consistent levels of donepezil, which is the most commonly prescribed treatment for Alzheimer's patients with over 10 million prescriptions per year in the U.S. alone and as the active ingredient in oral Aricept.
Our donepezil development program has advanced very quickly. In 2016, we generated our first human data and received FDA guidance on the streamlined bioequivalence, or BE, pathway. In 2017, we completed a very successful pilot bioequivalence trial and had a positive FDA meeting based on the results of that study. And now we are targeting an NDA filing by the end of this calendar year.
Our pivotal bioequivalence trial is well underway. We started dosing in October and are currently in -- are in the second and final treatment period of the study. The trial is a two-way crossover design that is a simplified version of the successful pilot BE study that we completed last year. It has been conducted at the same site as the pilot study and has been progressing well and according to plan. The dosing in the final treatment period will be completed this month, followed by a 5-week follow-up and washout period.
We started the trial with 86 subjects. And although we have planned for a significant attrition due to the length of the study, the dropout rate has been very low, and we still have 78 subjects enrolled as of this week. The larger number of subjects completing the study should provide an especially robust dataset. While we've moved forward with this bioequivalence trial, the FDA is continuing its review of whether the pilot study itself is sufficient to serve as our pivotal BE trial. We're prepared to use either study as our pivotal trial for registration.
You will recall that in our pilot trial last year, our product achieved statistical bioequivalence to oral Aricept at an earlier stage than we expected and demonstrated excellent tolerability, including a sixfold lower incidence of nausea and a fivefold lower incidence of vomiting compared to oral Aricept. In addition to the pivotal BE trial, we're pursuing ancillary studies such as standard skin tolerability and alternative patch application site studies that are already underway. And a heat effect study that will be starting very shortly. These are being connected with a benefit of guidance from our meeting with the FDA last summer.
We've also made excellent progress on the manufacturing of the Corplex Donepezil patches and the chemistry manufacturing controls, or CMC, work that is needed for an NDA, including completion in the last quarter of the registration lots for the products that we're using in the pivotal study. In our partnering initiatives on Corplex Donepezil, we are evaluating and discussing with potential partners proposals for specific geographic regions as well as for multiregional arrangements. We've achieved further clarity on regulatory pathways outside the U.S. For example, we recently received confirmation from a leading European regulatory agency based on review of our pilot study results that the bioequivalence pathway is available. We're in the process of obtaining further guidance on the pathway in Japan based on consultation with regulators and key opinion leaders, and we're getting input relating to China and other territories as well.
It's taking some additional time to work through the alternative types of deals and commercialization plans, but we continue to be very focused on these opportunities and securing a partnership. In addition to the clinical development work on Corplex Donepezil, we're also pursuing preclinical formulation and feasibility work to advance other Corium-owned candidates. This has allowed us to broaden our portfolio with multiple candidates progressing in parallel, while focusing our clinical resources on the donepezil program. We expect to select the next candidate for clinical development later this year after the donepezil pivotal trial is complete.
In our preclinical programs, we're focusing on the high-potential molecules, including those in the CNS therapeutic area, and we believe most of our candidates will be eligible for bioequivalence pathway. These candidates are in addition to our clinical-stage Corplex Memantine product candidate, which is a once-weekly patch delivering the second most-widely prescribed drug for Alzheimer's patients after donepezil. We're making good progress in this formulation work and look forward to discussing these as we generate additional data and advance them into further development in the clinic. We're also reviewing strategies that can enable us in the future to advance our clinical development programs in parallel rather than sequentially.
In our partner-focused business, there are several key developments. First, in late December, Agile received a complete response letter, or CRL, from the FDA on its NDA for the Twirla contraceptive patch. As Agile has reported, the FDA's comments on the complete response letter related in part to questions regarding patch adhesion in patients in Agile's Phase III clinical trial and in part the quality adhesion test methods, which are used to test product samples for consistency from lot to lot. We addressed the questions related to quality testing methods in early December of 2017 when we and Agile submitted information to the FDA, including data supporting qualification of the adhesion test methods.
In the complete response letter, the FDA staff indicated they have not yet reviewed this information before issuing the CRL. We're working to clarify any additional steps that may be needed, and we continue to work with Agile to refine and optimize the testing procedures and generate additional supporting data. Separately, Agile is planning to address the questions about adhesion in its clinical studies and anticipates meeting with the FDA to review and attempt to resolve each of the issues raised in the complete response letter. At this stage, due to uncertainties around the FDA review, we are not able to predict the timing or probability of potential commercial sales revenues to Corium from the Twirla product.
From a broader perspective, we are confident that we have robust manufacturing processes and quality control systems in place. And we continue to be authorized by the FDA to manufacture our commercial products. As a reminder, our proprietary Corplex technology that we use in our own products, like Corplex Donepezil, has excellent adhesion properties and our clinical data and experience with marketed products strongly supports this.
In our Procter & Gamble partnership program, the build-out of additional capacity for the manufacture of the Corplex-based Crest Whitestrips as part of our extended supply agreement with P&G is on track. Based on our progress to-date, we expect to have our additional production line -- our additional production online by the middle of calendar 2018. And this should enable us to significantly increase revenues from P&G. In addition, we continue to work with P&G in our collaboration to add new offerings in this oral care product line.
Our partnerships have enabled us to pursue our strategy, which is to leverage our technology and expertise, including our manufacturing capability to create novel products that meet important patient needs. Our Corplex Donepezil program has demonstrated the success of our approach, and we plan to build on the success by applying the same approach to other high-value therapeutics that have not been within the technical reach of competing transdermal technologies.
I'll now turn the call over to our CFO, Bubba Breuill, who will review our financial results. Bubba?
Thank you, Peter. And again, good afternoon, ladies and gentlemen. As a reminder, today, we will be discussing results for the first quarter of our 2018 fiscal year, which ended on December 31, 2017. Moving forward, I will simply use the word year to refer to our 2018 fiscal year, 2017 and 2018 to refer to those fiscal years and the quarter to refer to the first quarter of our fiscal 2018.
Today, we reported total revenues of $9.3 million for the quarter compared with $7 million for the same period in 2017. Of that total, product revenues were $5.9 million for the quarter compared with $5.7 million for the same period in 2017. The $0.2 million increase in product revenues was driven by a $0.6 million increase in revenues from Crest Whitestrips and a $0.2 million increase in revenues from Fentanyl, partially offset by a $0.6 million decrease in revenues from Clonidine. Based on information currently available, we expect revenues from generic products in 2018 to remain roughly consistent with 2017, if not, somewhat higher.
In our consumer business, demand for Procter & Gamble's Whitestrips product line continues to strengthen, especially from overseas markets, and we expect further growth in our revenues from Whitestrips once we complete our manufacturing capacity expansion in the second half of 2018. Contract, research and development revenues were $3.2 million for the quarter compared with $1 million for the same quarter in 2017. The increase of $2.2 million was primarily driven by a $1.2 million increase in revenues related to expanded development activities for Twirla in support of the regulatory filing and anticipated commercialization of the product, a $0.5 million increase in revenues related to a late-stage partner development program, a $0.2 million increase in revenues related to P&G development activities and a $0.1 million increase in revenues related to our co-development programs.
Based on the most recent public guidance from Agile, we are no longer anticipating full year contract R&D revenues for 2018 to be higher than those of 2017. Cost of contract R&D revenues were $3.6 million for the quarter compared with $2.1 million for the same quarter in 2017. The increase of $1.5 million was primarily result of $1.3 million increase in costs related to the Twirla program, a $0.5 million increase in costs related to a late-stage partner development program and a $0.2 million increase in costs related to a partnered contract feasibility program. These increases were partially offset by a $0.6 million decrease in costs related to a co-development program based on completion of certain development stages during 2017.
Research and development expenses for our proprietary programs were $10.2 million for the quarter compared with $6 million for the same quarter in 2017. The increase of $4.2 million was primarily driven by a $3.8 million increase in Corplex Donepezil as we initiated the pivotal BE study and ancillary clinical studies during the quarter and a $0.9 million increase in expense for preclinical development work on various proprietary feasibility programs. This increased R&D investment was partially offset by a $0.6 million decrease in clinical expense for other proprietary programs as we prioritize Corplex Donepezil ahead of our other self-funded programs.
Our investor and proprietary R&D will increase substantially throughout the remainder of 2018 as we complete the development of Corplex Donepezil, including the pivotal study and as we conduct several ancillary studies in parallel.
General and administrative expenses for the quarter were $3.3 million, up from $3 million for the same quarter in 2017. This $0.3 million increase was driven primarily by an increase of $0.2 million in incentive compensation expense. Net loss for the quarter was $13.3 million or $0.37 per share based on $36.1 million weighted average common shares outstanding during the quarter. This compares with a net loss of $10.4 million or $0.46 per share based on $22.5 million weighted average common shares outstanding during the same quarter in 2017. As of December 31, 2017, there were 36.1 million shares of our common stock outstanding, which reflects the issuance of 13 million shares in connection with our financings during 2017. And as a result, direct comparisons of per share amount between years may not be that useful to investors.
We ended the quarter with cash and cash equivalents of $45.2 million compared to $57.5 million at the end of the preceding quarter, a decrease of $12.3 million during the quarter. We expect our quarterly cash requirements to increase further as we continue to engage in the ancillary clinical studies required for an NDA filing for Corplex Donepezil at the end of this calendar year. We have sufficient cash to complete the pivotal trial for this program and to continue its preparations for NDA filing. And we are planning to secure additional nondilutive sources of capital to fund future development activities.
I will now turn the call back over to Peter. Peter?
Thank you, Bubba. During the quarter, we've carried forward the momentum from 2017 and are progressing towards the achievement of several important milestones in 2018. Our Corplex Donepezil program is on track with the completion of dosing in the pivotal trial later this month, top line results in the second calendar quarter and an NDA filing expected by the end of calendar 2018. Partnering discussions are advancing with parties focused on both regional and multiregional arrangements. We're working closely with Agile to address FDA questions and help our partner gain approval of Twirla. And we are expanding our pipeline and applying our resources to develop additional product candidates and provide meaningful benefits to patients and their families.
We have set the stage for a transformative 2018 and are very much looking forward to reporting on our progress.
Operator, we can now open the call for questions.
[Operator Instructions]. And the first question will come from the line of Oren Livnat with H.C. Wainwright.
On the revenue side a couple of things. Looks like your product's revenue gross margins, if I'm doing the math right, was almost 45%, which, I think, is the highest I have ever seen. And so I'm wondering if that's just lumpiness or if that reflects some underlying economic that are sustainable? And I have another question.
Great question, and your math is accurate. So the mix of the products change. As I mentioned that we had higher Crest Whitestrips sales, lower generic sales. The Whitestrips have better margins than generics. So lumpiness can be the case, but as we've been making it pretty clear, Whitestrips is continuing to grow. And once the expansion is complete, it will continue to grow further. So we should see that product mix shifting towards those higher margins.
Okay. Great. And I guess, on the contract revenue side that was a little bigger than I expected. I guess, it was mostly driven by Twirla, but it sounds like, if I'm understanding you correctly, that is going to dry up a little bit through this -- the rest of year based on your guidance. So I know you can't comment too much on the status of Agile's NDA, but I guess, as you guys work together and you have to forecast your resource allocation, are you assuming that you guys are kind of hitting the pause button with regards to any sort of precommercial investments through this...
No. No. Actually, I want to make sure I'm clear. It is not drying up, it's just that the large increase year-over-year is unlikely because until the product starts shipping commercially, all those revenues for the precommercialization activities, all the launch buildup, all the PPQ batches all of that booked as R&D revenue. So it's not that it's drying up, it's just that we were anticipating a launch that's now clearly not going to happen on time. So we're not going to have the big growth we had thought we are going to have in contract R&D revenues. They are going to still be good. They're just not going to grow as much.
Does that makes sense?
Yes. Okay. Well, obviously, if I understand currently, your R&D line -- I guess, just some of the spending you do before this product is approved, let's say, it's precommercial and there were no problems and you anticipated an upcoming PDUFA, for example. You would be booking revenue in which line?
Until it ships commercially, those are R&D revenues.
R&D revenue, exactly. So my question, I guess, is on that line. Do you expect to still see cash coming in from Agile? Or do you think that everybody is going to slow down until we get some more clarity from the FDA?
No. If anything, we're actively supporting them in prosecuting the NDA, so we're very involved in their efforts right now.
And the next question will come from the line of Bill Tanner with Cantor Fitzgerald.
Congratulations on the progress. Peter, just had a couple of questions. So first one is, you provided the time line on the release of top line data from the pivotal study. And I'm just curious, is there going to be a need to go through the 5-week washout for the release of top line data. Is that necessary? Or is that something that you guys are contemplating in doing?
That is necessary. The washout is a follow-up period where we're continuing to evaluate -- to take blood samples, and we have to do the evaluation and the analysis of all the blood samples once the washout period is completed. So we have to analyze it altogether and not piecemeal.
Got it. And then you mentioned that you're waiting for clarity on the acceptance in China, Japan. And I am just wondering, obviously, for good reasons, you guys haven't provided a lot of detail or much detail at all as it relates to the types of partners that you're seeking in the region. But I guess, the question would be, is that uncertainty? Is that stalling in any way reaching some kind of a commercialization agreement in those regions? I would think that there would be, obviously, a Japanese company potentially might really cover that area. And if they don't know, just curious if that's having an impact on any discussions?
Well, I think the lack of clarity is not causing people to shy away from negotiating with us. It can impact really what kind of deals we do in which time frame. And the -- so having clarity definitely helps, but I would say, it's not necessarily a showstopper. It can impact the way the deal is structured. In other words, there could be some ways of structuring around the uncertainty.
And then just the last question is, so you got clarity from European regulator. Any thought about the time line along which you might have clarity from patient regulators?
I can only say, we're in the process of that and we are pursuing it. It's -- it tends to be an extended process. But again, we don't see that necessarily as a gating factor. We are in discussions with regulatory authorities in Asia and getting feedback from them. So it's an ongoing process. It's not something that hasn't started yet. It's in process.
[Operator Instructions]. And the next question will come from the line of Steve Brozak with WBB Securities.
Congrats on all this progress. There was one statement that was on the -- on your press release. It was kind of interesting, and I'd like you to try and give as much detail as possible. You talked about, we generated our first human data in 2016 and are actively working towards filing an NDA by the end of this year. And if anyone has been doing this for a little bit of time now that that's lightning speed for any kind of testing and submission. Given the fact that FDA is now familiar with the last one to the nth degree, and you're picking up targets that are well known and that you have an advantage to specifically with donepezil in terms of its avoiding GI issues. What are your partnering discussions for other programs that are looking for things where you have a competitive advantage on the different potential partners that have products that might have these issues? And the second part of the question is, in terms of, how do you use this to gauge what other programs you may go into the future? And I've got one follow-up after that.
Sure. Thanks, Steve, for the question. So it's 3-part question, but I think there is common theme to it. One is, this is a very fast pace, and it is -- it does relate to the bioequivalence pathway being able to go from an oral dosage form to transdermal based on bioequivalence is a novel approach. Our technology made it possible, and it was possible because we are able to formulate donepezil in a way that other technologies couldn't. So it's a function of the properties of donepezil, which has a very long half-life and the properties of our technology, which allowed us to provide a sustained 7-day delivery profile. So it is a very fast path. It is very different from typical transdermal patches. It has helped us get the attention of prospective partners. But I would say, primarily when I spoke about us doing preclinical programs, with this experience with donepezil, we've been evaluating a number of molecules that can also benefit from bioequivalence and putting those into our preclinical pipeline.
Some of those may be molecules that we would partner, some of those may be molecules that we could take forward, potentially ourselves, we could take it forward as we have with donepezil and then partner or we could either partner early or potentially find the right molecule to take into the market ourselves. So it has raised our awareness of the potential, and it's raising the awareness of partners, not only in the CNS space with our products, but with others. But I'd say, the major focus for us is what we can do with this technology and to the extent that partners are interested in working with these programs all the better.
Okay. And look, provided for that, can you give us any kind of -- and I'll hop back in the queue after this. On the Boston CTAD, in terms of looking at all of the landscape there, which is pretty bleak. Can you give us any kind of feedback as to what you heard after during in terms of the conference and where you were positioned afterwards because by comparison, there is not a whole lot of good news that came out? What was the feedback from that? And again, I'll hop back in the queue after that.
Yes. The Alzheimer's conferences have not provided much in the way of good news. There have been a lot of programs falling by the wayside. And I think the net impact on us is -- I think the market generally realizes that donepezil is the drug of choice and is likely to be the drug of choice for quite a while. Even when a disease-modifying drug is ultimately approved and nobody knows how long that's going to take. Maintenance therapy and therapies like donepezil that slow down the symptoms are going to have an important role. So if anything, it's strengthened the notion that donepezil has an important role play, not only now but in the future. And I think it also highlights that our program is in a totally different ballpark in terms of the risk profile. The two-year time line you mentioned and the risk profile with a known drug is just totally different from the level of expense and the level of risk with a new molecular entity.
[Operator Instructions]. And the next question comes from the line of David Steinberg with Jefferies.
First, financial question. Bubba, I know that each quarter, Corium is paying out almost $2 million here in interest expense. And it's pretty big number annualized, particularly given that you are burning cash. Is there any way that you could reduce the debt? I think you've had it for a couple of years. It's pretty high interest rate. Anything you can do there to reduce the burden on your annual P&L via vis-à-vis interest expense?
Yes, David. With the exception in the last two weeks, interest rates have been incredibly low. So there is an opportunity, especially where the company has evolved to and as Peter pointed out, our risk profile has improved greatly. That alone was made back in 2012. So before we even public, we are private company. So there are a lot of opportunities to replace that instrument with something that has a much lower interest rate. And we had been looking at that actively. We had noted that the existing loan agreement had contemplated profits from Twirla. Revenues from Twirla happening much earlier. So we need to replace that loan by this summer, and I believe we're going to be able to do that.
Great. And then just more of a strategic question. I know you've been talking about partnering your Alzheimer's product for quite a while. I think it's been at least a year. I know these thing go and sits and starts. Companies come and go. Just curious, why is it been so protracted? Did you have, for example, a partner who's about to sign a deal and then they backed out? Or did you have more -- recently more entrants coming into the pool? Just seems like it is taking quite a long time to put this together, given the impressive data that's been released quite some time ago?
Yes. David, I'll take that. This is Peter. It's partly a matter of new entrants. It's partly a matter of new interest. The pilot data that came out in May was a catalyst for getting more companies involved. We've also had somewhat larger companies get involved more recently. And companies are interested in multiple regions, which tends to create some complexity, but in a good way. So I would say, it's been moving -- a little bit of a moving target moving in the right direction in terms of the size of the potential partners and in the interest level and the types of partners who have gotten into mix. And we have had significantly a lot of interest outside the U.S. as well as in the U.S. So I would say, that's -- those are factors that play into the timing. And we also want to make sure we're doing the best deal possible.
I'm showing no further questions in the queue. I'd like to hand the conference back over for closing remarks.
Thank you very much. Thanks, everyone, for joining us this afternoon. I'd like to thank our stockholders for your continued interest and support and our team here at Corium for their hard work and innovation. We look forward to speaking with you again soon and reporting on our progress. And for those of you who'll be in New York for the BIO CEO Conference and LEERINK Healthcare Conference, we look forward to seeing you in-person next week. Operator, could you please conclude the call?
Thank you. Ladies and gentlemen, thank you for participating in today's conference. This does conclude your program. You may all disconnect. Everyone, have a great day.