Zosano Pharma Corporation (NASDAQ:ZSAN) Q4 2018 Earnings Conference Call March 14, 2019 4:30 PM ET
Greg Kitchener - Chief Financial Officer
John Walker - Chairman & Chief Executive Officer
Don Kellerman - Vice President, Clinical Development & Medical Affairs
Conference Call Participants
Bert Hazlett - BTIG
Good day, ladies and gentlemen, and welcome to the Zosano Pharma Inc. Fourth Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to introduce your host for today's conference Greg Kitchener, Chief Financial Officer. You may begin.
Good afternoon and welcome to Zosano's fourth quarter 2018 financial results and operational update conference call.
Today's call will focus on our financial results and highlights of the quarter ended December 31, 2018, as well as important recent milestones. Copies of our press release are available on the Investor Relations, Press Release section of our website at www.zosanopharma.com. Today's call is being recorded and a replay of our webcast will be available on our website approximately three hours after the call, and available through April 14, 2019.
Joining me on the call today with prepared remarks is John Walker, Chairman and Chief Executive Officer. Later on the call, for the question-and-answer session, we will be joined by Don Kellerman, VP, Clinical Development and Medical Affairs; and Hayley Lewis, SVP of Operations.
Before we begin, let me remind you that today's call may include forward-looking statements reflecting management's current expectations and beliefs. These statements are subject to risks and uncertainties that are difficult to predict and actual outcomes may differ materially from those anticipated in such forward-looking statements.
Forward-looking statements include, but are not limited to, our current expectations and projections relating to the anticipated progress of Qtrypta, or M207, and the projection -- projected timelines for our research and development activities and other milestones, our ability to obtain FDA approval of Qtrypta, our expectations regarding the relative benefits of our product candidates versus competitive therapies, our business, partnering and capitalization strategy, our expectations regarding potential markets or market sizes, our expectations regarding the therapeutic and commercial potential of Qtrypta, and our future financial results.
We assume no obligation to update or revise any forward-looking statements, except as required by law. For a detailed description of the risks and uncertainties regarding our business, please refer to the Risk Factors section of our Form 10-Q filed with the SEC on November 15, 2018, and in our most recent Form 10-K filed with the SEC.
Before I turn the call over to John, let me spend a few minutes discussing our financial results for the fourth quarter and full year. Zosano reported a net loss of $10.1 million, or $0.85 per share, during the fourth quarter of 2018, which compares to a net loss of $7.5 million, or $3.80 per share, during the fourth quarter of 2017.
Total operating expenses for the fourth quarter of 2018 were $10.3 million, up about $3 million over last year. Research and development expenses of $7.3 million for the quarter compared to $5.5 million last year. The increase in R&D was mainly due to the scale up and transfer of technology to our contract manufacturer, along with costs associated with our long-term safety study.
General and administrative expenses were $2.5 million during Q4 of 2018, compared to $1.8 million during Q4 of last year. The increase in G&A was primarily due to higher stock compensation, cost associated with personnel, and taxes. For the full year, we had a loss of $35.4 million, or $3.74 per share, compared to a loss of $29.1 million or $16.82 per share in 2017.
R&D expenses were $25.5 million compared to $20.1 million last year. The increase is mainly due to costs associated with our long term safety study, the scale up and transfer of technology to our contract manufacturers, personnel and stock compensation expense. G&A expenses were $9.4 million in 2018 compared to $8.2 million last year. The increase is mainly due to higher taxes, personnel and stock compensation expense.
During Q4 we drew down the second tranche of our equipment lease for $2.8 million. The lease component of these draw downs appears on our balance sheet as a build-to-suit obligation of $6.8 million, which has broken out between a current and a long term portion. As of December 31, 2018, we had cash, cash equivalents and marketable securities of $23 million, down about $6 million quarter-over-quarter.
Regarding our cash and the capital needed to fund our planned growth and operations over the remainder of 2019 re-evaluating a number of options to obtain additional capital resources including non-dilutive capital from a collaboration, with a partner on the marketing and distribution of Qtrypta, a potential equity financing or through a combination of both among other options.
With that, I will now turn the call over to John Walker, our Chairman and Chief Executive Officer. John?
Thank you, Greg. The entire team at Zosano has much to be proud of in the execution of our stated milestones over the last year. We completed a follow on offering at the end of March and closed on $50 million in new financing in early April.
In May, we announced that we had completed enrollment in our long term safety study at 344 subjects. This total was more than originally targeted in order to ensure that we would be able to complete the required numbers of 150 subjects completing six months and 50 of those completing one year with an average of two doses per month, as per the protocol design agreed to with both the neurology and dermal divisions of the FDA.
This was followed by an announcement in October that over 150 subjects had successfully completed six months on treatment, with an average of at least two uses per month. Last month, we were pleased to announce that 50 subjects had completed a full year on study drug, accomplishing the requirement for the final dataset per protocol at the long-term safety study.
As remaining subjects have been completing their final visits at the investigator cites. We now have 260 who have completed six months and over 90 who have completed a full year. The fact that so many of the subjects have stayed in the study is gratifying, and we believe the expanded dataset that we will be able to provide the FDA will be helpful in their evaluation of the safety of Qtrypta.
As we have reported previously, the rate of investigator reported adverse events has been approximately 6% for site related events and 3% for pharmacological side effects, such as drowsiness, paraesthesia and dizziness. This percentage is based on the number of applications.
Our manufacturing and development group achieved their main goal by placing three lots of GMP material on stability testing in August. These registration batches will allow us to file the NDA, with the required 12 months of debility data in keeping with our stated goal of filing in the fourth quarter of 2019.
In the third quarter, we were able to announce the signing of an agreement with our contract manufacturer pantheon to transfer the proprietary technology developed by Zosano to their site in North Carolina and to commence scale up of manufacturing to a capacity of 1.6 million doses per year at launch.
Our medical affairs group has continued to increase the exposure of Qtrypta in the clinical community. During the past year, we had the opportunity to have our data presented at key conferences as well as to have peer reviewed publications helping to illustrate the efficacy and treatment effects of Qtrypta in achieving fast onset of pain relief, a high rate of pain relief, and the durability of effect with a low recurrence rate.
Most recently, headache published a review that underscored the ability of Qtrypta to effectively achieve pain freedom and freedom from most bothersome symptoms in “difficult to treat migraines” which were defined as waking with a morning migraines, severe pain associated with migraines, delayed treatment of greater than two hours after a migraine occurs and for those who have nausea associated with their migraines. These were identified as indications, where an oral tablet has not been found to be as effective due to slow absorption times and general G.I. motility issues resulting from the migrant attack. We also generated PK data in animal studies that illustrate the efficacy and efficiency I should say of our delivery system and this was published in the Journal of Pharmaceutical Science.
In addition to the clinical, manufacturing and development accomplishments of the last year, it is important to point out that we have also strengthened our management team with Greg Kitchener joining us as CFO as well as with Christine Matthews assuming the role of Vice President and Controller. Both come with considerable experience in all facets of the finance and accounting function. And importantly, although not highly visible to our shareholders, we also implemented a new ERP system during the past year.
We have evolved the Board of Directors as well with three new members, Ken Greathouse, Steve Elms and Linda Grais adding their expertise and experiences to the governance and strategic direction of the company.
With much of the past year being focused on the execution of those tasks needed to move Qtrypta to an NDA, we now welcome 2019 as a year of transition. We intend to carve out a unique position for our intracutaneous delivery system in creating value for patients in the convenience and the clinical performance of existing drugs to further enhance our value to potential partners by expanding our delivery capabilities to accommodate their needs to plan lifecycle management of innovative products and differentiate those products in the market, and to capture value for our shareholders as we seek to expand our portfolio, and pursue non-dilutive capital by leveraging our pipeline through partnerships.
And delivering on this long term strategy for value creation, 2019 is expected to be a pivotal year with the following plan milestones. The following of the -- the filing of our NDA in the fourth quarter for the treatment of acute migraine. We have already started the writing of this submission and as you would expect this remains the key focus for the company, and agreement to partner Qtrypta for sales, marketing and distribution with the expectation that such an agreement will provide downstream revenue to the company based not only on a negotiated royalty, but the selection of the right partner, who will provide the focus, the positioning, and the capacity to achieve potential peak sales of greater than 400 million, which we believe is achievable based on the clinical data we have generated and what we see as its relative performance to both existing therapies and the reported results for new modalities and mechanisms that may enter the market in future years.
Of course this is predicated on the approval of our NDA by the Food and Drug Administration. We expect to file an IND for Qtrypta in the treatment of cluster headaches, an important and underserved patient group who require fast onset and durable efficacy in their treatment.
Both of these characteristics were demonstrated in our pivotal efficacy study in migraine. If the IND is approved, we expect to commence a Phase 2 study in cluster headache early in the third quarter.
Further expanding our portfolio, we plan to select one of the five HD3 inhibitors that are now in preclinical development. Following the selection of our candidate and the manufacturer of clinical trial material, we will file for regulatory clearance to enable us to start and complete a Phase 1 PK study in normal volunteers in the fourth quarter.
Based on research, preclinical and clinical data we have in hand, we are convinced that there is an opportunity to uniquely position our platform for the intracutaneous delivery of biologic agents such as proteins, biosimilars, vaccines and potent monoclonal antibodies. We see this as a way to drive significant value as these agents are currently delivered only by intravenous intramuscular and subcutaneous routes of administration.
With the anticipated approval of Qtrypta by the end of 2020, 12 months after NDA filing, we believe we will be the first approved intracutaneous delivery system for a marketed drug in the United States. We intend to build on that leadership along with our demonstrated manufacturing capability to help drive partner and owned programs, providing a fourth alternative for delivery of select biologics.
We plan to have a biologic agent in preclinical development in the second half of this year. While we know that these are ambitious plans for 2019, I believe that the team at Zosano demonstrated last year the ability to execute well against our stated goals and we intend to again aim high in order to build the company that we envision for our shareholders, employees, and partners.
Thanks for your attention and we will now open for Q&A.
[Operator Instructions] And our first question is from Bert Hazlett from BTIG. Your line is now open.
Thank you and congratulations on the progress. We look forward to 2019. Like to ask about the potential for partnership for Qtrypta. Could you give us a sense of, John, the range of potential marketing and distribution agreements that might be under consideration? And if you can a sense of what might -- what an optimal agreement might look like?
Yes. So, as I believe you are aware Bert we have recently initiated those partnership discussions. And what we are clear clearly indicating is that our preference would be to form a more traditional type of out-license agreement one that would be comprised of an upfront licensing fee, milestone payments, some sharing of costs in the manufacturing area, and then downstream royalties on the successful sales of Qtrypta in the market.
And so we feel that that is a very reasonable approach for us to take given the fact that Qtrypta is a highly derisked asset at this point in time with a very clear regulatory path in front of us. And we believe that the timing is appropriate in discussions with partners as this will allow a potential partner to have input in the NDA submission, and particularly, in regard to labeling and certain marketing aspects such as packaging and et cetera that need to be included as part of that filing.
So, the optimum package, I think, would be along the lines that I describe and would provide enough capital so that we would be able to move through launch of the product and into the beginning of a royalty stream generated from that product.
Now, having said that, I want to caution here that partnerships are difficult to predict, it has to fit the strategic bias of any organization that we are discussing this opportunity with and not surprisingly, we have had discussions with companies that range from larger established pharmaceutical groups to smaller more specialty pharma type sales and marketing organizations. So, we are hopeful that we will be able to conclude such a discussion in time to incorporate any input from that partner in the NDA filing.
Thank you. And sticking with Qtrypta for another question or two. The program with its rapid robust and durable efficacy seems as if it is -- should be intriguing for several groups of migrainers. Has there been -- as you look at the market, it's nice to hear the peak sales forecasts that you put out there. But as you look at the market, is there a potential group that is an early adopter, such as the -- those that with early morning migraine or those with nausea that you think might be low hanging fruit as Qtrypta get to the market.
Hi, Bert. This is Don Kellerman. Yes. I think and John mentioned in past we had just published a paper on difficult to treat migraines those that have been difficult to treat. And I think that -- those are sort of the obvious patients that headache specialists would select a non-oral for it. So I think to [Indiscernible], the low hanging fruit is really those patients who are not getting adequate treatment from their oral, perhaps due to gastric spaces, which is pretty well known in migraines. And that's kind of why we thought it was important to publish the paper on those subgroups, because we did see such a good response in them. So, if I add, I would say, those are the first people that would get this therapy.
And Bert I'd like to just add a little bit further if I might. So these difficult to treat migraines do represent in excess of 50% of the presentation or the migraines that are presented, fully 45% to 48% as reported in the peer reviewed literature have morning migraines, where it's already a developed migraine. And therefore, it's very difficult to expect in oral to either be timely in the degree of pain relief that it might be able to provide, and secondly, somewhat sporadic in that pain relief due to the GI motility issues that have been reference.
We also would point interested parties to a presentation that we have on our website there was a continuing medical education unit at the International Headache conference in Vancouver, British Columbia back in September of 2017, where there is a very strong case made for the continued need for non-oral therapies for the treatment of these difficult to treat migraines.
And I would also like to point to the fact that in peer reviewed literature and in fact in some research we've done on our own that approximately 80% of the migraine patient population are interested in pursuing new treatments for their acute migraines. So there is a high degree of patient dissatisfaction in the market and we believe that Qtrypta can be position based on our clinical data as a potentially best-in-class triptan solely on the basis of the clinical data that we have generated across the board in terms of fast onset, durability of effect, peak pain relief, the number of patients that achieve total pain freedom within two hours and importantly as I've said before, the durability of effect.
We also believe the Qtrypta will compete very effectively against injectables, because we had demonstrated in our pivotal efficacy study that the percentage of pharmacologically related side effects such as those I mentioned previously of drowsiness, dizziness, paresthesia are approximately one-third with our delivery of zolmitriptan versus a six milligram injection of sumatriptan. And that is available based on a comparison of our data with their packaging insert and the material that they have there in. So we think there's a very strong opportunity to position this against competitive products as a potential best-in-class triptan as I indicated and we see a target market that comprises over 50% of the market in just going after these difficult to treat migraines. So the paper published at the end of January as Don indicated, we saw as being a very important one and I can tell you that in our follow up discussions with different clinicians and so on, they have essentially underscored that component.
Thank you. That makes sense. Could you describe a little bit more as you build out Qtrypta a little bit more about the cluster headache program in terms of the scale and scope and timing of what a Phase 2 study might look like?
A – Greg Kitchener
So yeah, it's a good question because there hasn't been a lot of work done in terms of pharmacologic age. There’s nothing been approved since sub-Qtrypta and triptan in the 90s, so -- and probably be related to the fact most of these products aren't absorbed fast enough to really the cluster headache would have been gone by the time we get good absorption of an oral, so we think we have a good opportunity here just because of our pharmacokinetic profile.
We have -- we have had a pretty R&D request with the FDA and had some dialogue with them about the appropriate endpoints and I think we had a good discussion about what would be the appropriate endpoints or endpoints for that study. We are likely to unveil the study where we evaluate two doses versus placebo. There are some -- there are certainly clinicians believe that lower doses of sub-Qtrypta and triptan seem to work in a lot of patients, so we felt it was important to evaluate two doses versus placebo, so the classic parallel placebo controlled trial of a cluster attack in both chronic and episodic cluster.
They were excited about it because again there seems to be an unmet need here. Really the only pharmacologic treatment is a shot and again people -- there's a lot of needle phobia out there. So we're having discussions with clinicians. As John said, we're targeting the third quarter to really get this thing up and running. And I think it's going to be a really interesting program.
A – John Walker
And just to add a little bit of additional color on that Bert, Pete Schmidt who is our Director of Medical Affairs has been out talking to potential investigators and as we had thought this has a very strong crossover to those investigators, they're also involved in the migraines space and they're very excited about the opportunity to participate in a study focused on cluster because as I mentioned although it's a smaller patient population, about 350,000 or so patients in the U.S. is what the estimate would be, that the fact that it requires fast onset and durability of effect, we think plays to our PK profile, as Don indicated, to the clinical data we generated in migraine and we believe that will have success here and it will help provide continued exposure for us in the clinical community, even as our NDA moves forward in filing this year and during the period of time where it's under review by the Food and Drug Administration.
Thanks. That makes sense. Just one more for me, and I'll get back in the queue. But -- so, the anti-emetic program in terms of additional internal efforts seems to have risen to the top. Could you just give a little more color on how and why it did bubbled to the top of additional efforts internally?
Well, first and foremost, it is a small molecule that has the type of dosing requirements and so on, that are very compatible with our current delivery system that we use with Qtrypta. So, it doesn't require any additional development work on the patch or the applicator and that was one of our early filters in terms of looking at follow on programs.
In addition to that, it's a $6 billion overall market, with a reasonable portion of that still in the hospital setting, where the most potent 5-HT3 inhibitors are delivered by way of IV. And so, we believe that an alternative perennial delivery system which we offer will be uniquely positioned to take these more clinically based type of inhibitors that are very effective in, for example, chemo, induced nausea and vomiting, and to be able to move those into the outpatient setting, as well as in the hospital market based on the unique delivery system that we offer.
So, we see the opportunity there playing into a good sized market with that opportunity for a more effective and perhaps longer lasting, if you will, anti-emetic to be available in the market.
Thanks. We'll look forward to progress there. Congratulations once again.
Thank you, Bert.
Thank you. [Operator instructions] Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.