Zosano Pharma Corp (ZSAN) CEO Steven Lo on Q3 2019 Results - Earnings Call Transcript

Nov. 14, 2019 10:01 PM ETZosano Pharma Corporation (ZSANQ)
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Zosano Pharma Corp (ZSAN) Q3 2019 Earnings Conference Call November 14, 2019 4:30 PM ET

Company Participants

Gregory Kitchener - CFO

Steven Lo - President, CEO & Director

Dushyant Pathak - SVP, Business Development

Donald Kellerman - VP, Clinical Development & Medical Affairs

Hayley Lewis - SVP, Operations

Conference Call Participants

Charles Duncan - Cantor Fitzgerald & Co.

Robert Hazlett - BTIG

Anthony Vendetti - Maxim Group


Ladies and gentlemen, thank you for standing by, and welcome to the Zosano Pharma Corporation Third Quarter 2019 Earnings Conference Call. [Operator Instructions].

I would now like to hand the conference to your speaker today, Greg Kitchener, Chief Financial Officer. Please go ahead, sir.

Gregory Kitchener

Good afternoon, and welcome to Zosano's Third Quarter 2019 Financial Results and Operational Update Conference Call. Today's call will focus on our financial results and highlights of the quarter ended September 30, 2019, 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 3 hours after the call and available through December 14, 2019.

Joining me on the call today with prepared remarks is Steve Lo, President and Chief Executive Officer. Later for the question-and-answer portion of the call, we will also be joined by Don Kellerman, VP, Clinical Development and Medical Affairs; Hayley Lewis, SVP of Operations; and Dushyant Pathak, SVP of Business Development.

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 related to the anticipated progress of Qtrypta and C213 and the projected time lines for our research and development activities and other milestones; our ability to obtain FDA approval of Qtrypta and C213; our expectations regarding the relative benefit 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 C213; 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 10-Q and 10-K filed with the SEC.

Before I turn the call over to Steve, let me spend a few minutes discussing our financial results for the third quarter. Zosano reported a net loss of $9.9 million or $0.55 per share during the third quarter of 2019, which compares to a net loss of $8.2 million or $0.68 per share during the third quarter of 2018. As a reminder, we are making some important investments to support commercial scale production of Qtrypta, including the build-out of a commercial suite at our contract manufacturer.

Total operating expenses for the third quarter of 2019 were $9.6 million, up about $1.3 million over last year. Research and development expenses of $6.5 million for the quarter compared to $5.9 million last year. This increase in R&D was mainly due to the scale-up and technology transfer to our contract manufacturer and higher compensation costs, which was offset by a decrease in clinical trial costs, primarily our long-term safety study.

General and administrative expenses were $3.1 million during Q3 of 2019 compared to $2.4 million during Q3 of last year. The increase in G&A was primarily due to consulting and other costs in preparation for commercialization and higher compensation costs.

As of September 30, we had cash, cash equivalents and marketable securities of $6.5 million. Regarding our cash position and runway, we are currently evaluating several different funding options, but we do intend to bring in additional capital before the end of the year. This could be through a traditional equity raise via our existing ATM, or at-the-market, offering or through other nondilutive funding sources. With an expected NDA submission next month and a potential acceptance in late Q1, we have several value-creating events for our shareholders in the near term.

With that, I will now turn the call over to Steve Lo, our President and Chief Executive Officer. Steve?

Steven Lo

Thanks, Greg. I am delighted to be here. While I've only been in the role for less than a month, I would like to share my vision for the company and detail the enormous opportunity we have to build a leading biotech company. Zosano was built on revolutionary microneedle technology that has the potential to deliver therapies with increased efficacy, reduced systemic side effects and greater convenience for patients. The therapeutic and competitive advantages of this approach are widely recognized with many companies pursuing the development of the right technology. We believe Zosano is a leader in microneedle technology and that we can usher in a new era of therapies that better meet the needs of patients.

There are three fundamental reasons why we believe Zosano is uniquely positioned for success and why I am extremely excited to join the company. First, we have a compelling product candidate with Qtrypta and the opportunity to have an FDA-approved product addressing a debilitating disease by the end of next year. Next, we have a second potential indication with C213 for the treatment of cluster headache. Finally, we have a technology with broad potential applications, enabling the development of a suite of portfolio of candidates through the establishment of partnerships or other business development transactions.

Let's start with Qtrypta. Qtrypta is Zosano's product candidate for the acute treatment of migraine. Qtrypta is well positioned with strong clinical data from a robust data set of more than 6,000 migraine attacks treated through our clinical studies. Importantly, its product profile is aligned with what patients are seeking in a new therapy. Specifically, Qtrypta has clinically demonstrated: first, a statistical significant impact on pain freedom and freedom from most bothersome symptoms; second, fast onset of action; third, the ability to keep patients free from pain for up to 48 hours; and fourth, it has been shown to be well tolerated.

While we have not conducted any head-to-head studies, Qtrypta's profile compares very favorably to existing triptan-based therapies and other new entrants. Qtrypta has a faster onset of action than other triptans and efficacy measure that is highly important to patients.

Qtrypta also has been shown to have higher rates of pain freedom at 2 hours compared to migraine treatments with other mechanisms of action. It is important to note that migraine treatments often have side effects that impact the ability of patients to function normally following treatment. Therefore, while patients may experience relief from their migraine headache, they are left with consequences such as dizziness and paresthesia, resulting in a hangover effect that impedes on their ability to carry on with their normal life. With Qtrypta, we have an opportunity to be differentiated on this important patient satisfaction factor as well.

As reported on the migraine ACT scores for Qtrypta, 86% of patients were able to function normally within 2 hours of taking the treatment. Based on these impressive data, we are finalizing a new drug application to be submitted to the FDA by the end of this year. We have successfully completed a PK-bridging study, which showed a similar PK profile between the product produced at our Fremont facility and the product produced at our contract manufacturer.

We have also recently completed a required 12-month stability analysis on our registration batches. In September, we had a pre-NDA meeting with the FDA that went very smoothly. Their comments were primarily administrative in nature, including the format -- including the formatting of data and tables.

Also, at the end of October, we submitted a briefing document covering CMC, and we received the FDA's written response this month. Their written comments reflect the discussions held between Zosano and the FDA on the format and content of the NDA. Based on this feedback from the FDA, the company believes our NDA will be sufficient for submission. After the submission of our NDA next month, the FDA has 74 days in which to reply. So we expect to receive an acceptance of our NDA in March of 2020. Given this will be the first FDA-approved microneedle system, we are assuming a 12-month review by the FDA. This would mean that in December of 2020, we would expect NDA approval for Qtrypta.

We are intent on positioning Qtrypta for success and maximizing the value of this asset. To that end, we are engaged in parallel path to getting this potential new therapy to patients. Based on the robust data package we are submitting to the FDA and our initial market assessment, we are actively preparing to launch Qtrypta ourselves and are conducting commercial readiness activities. These include the typical preapproval commercial work, including evaluating prescriber trends, distribution strategies and the payer reimbursement environment.

In addition, we have also been in ongoing discussions with companies regarding commercial partnerships. There have been a number of interested parties, and we continue to evaluate our capabilities, how Qtrypta would be positioned within their commercial portfolio and also the economics to Zosano.

With my extensive commercial and strategic development background, I am confident that we will decide on the best approach to support the success of Qtrypta. I have experienced successfully launching products at small biotech companies by building the commercial infrastructure through focused and prudent marketing strategies, coupled with a specialty sales force. And I believe that Zosano can be fully capable of addressing the acute migraine market ourselves upon FDA approval.

Beyond Qtrypta, we also recently announced the initiation of a Phase II/III study for C213, which has the same formulation as Qtrypta but is being studied for the acute treatment of cluster headache. Cluster headache impacts over 300,000 people in the United States and is characterized by severe unilateral, temporal and orbital pain. Our Phase II/III study is expected to enroll approximately 120 adults to be randomized to receive 1.9 milligrams of C213, 3.8 milligrams of C213 or placebo in a 1-to-1-to-1 fashion. The study will assess the proportion of patients who achieve pain relief at 15 minutes and the proportion of patients whose pain relief is sustained from 15 minutes to 60 minutes.

We also believe there is a tremendous opportunity beyond our 2 initial programs with our clinically validated ADAM platform technology. And in the third quarter, we hired Dr. Dushyant Pathak as our Senior Vice President of Business Development. He has over 20 years of senior executive experience creating strategic alliances in the life sciences industry. He is evaluating opportunities for our ADAM technology in applications such as vaccines, which may benefit from our technology's ability to deliver drug consistently to the epidermal and dermal skin layers that are rich in antigen presenting cells. As you may recall, we have Phase I data with a vaccine demonstrating that using the ADAM technology results in an increase in antibody titers and the seroprotection rate that could enhance the effectiveness of vaccines.

In conclusion, we believe Zosano is in a unique position. We are on the cusp of commercializing a favorably differentiated therapy, Qtrypta, for the acute treatment of migraine, a disease for which patients are very unsatisfied with their current options. We plan on having a second indication for cluster headache in Phase II/III clinical development that leverages the work done with Qtrypta. And we have a platform technology that has been validated by extensive clinical data with broad potential applications.

Before opening the call to questions, I'd be remiss if I didn't acknowledge the terrific leadership of John Walker, our former CEO, in shepherding the company to this stage. He will remain as Chairman of the Board. With the enormous talent and tremendous dedication of our employees here at Zosano, we are well positioned with a promising late-stage product candidate and platform that could fuel a deep pipeline of follow-on therapies.

With that, I will now open the call to questions.

Question-and-Answer Session


[Operator Instructions]. Our first question comes from Charles Duncan with Cantor Fitzgerald.

Charles Duncan

Steve and team, first of all, congrats on the recent regulatory progress. Had some questions along the lines of the Qtrypta regulatory process. And so I wanted ask those and then had maybe a pipeline question or so. Regarding, first of all, the NDA filing, in your discussions with the agency, has the idea of an ADCOM come up? Do you see there being any kind of points of -- I don't want to say question or contention with the agency. But would you anticipate an ADCOM? I mean the antibodies didn't have an ADCOM. But with this new technology platform, could you see one actually be announced?

Steven Lo

Charles, thanks for the question, and I'll turn the question over to Hayley Lewis, who is our Senior VP of Operations, who's been working very closely with the update.

Hayley Lewis

Charles, yes. So on the development program that hasn't come up, I don't think that it will lead to an ADCOM. And based on our recent discussions with the FDA during pre-NDA time, that wasn't brought up. So I don't foresee that happening throughout the review.

Charles Duncan

Okay. And then, can you -- Hayley, I know you worked really hard on this. But can you provide us any additional color on what was achieved with regard to the contract manufacturer in terms of the CMC now being potentially acceptable? I mean do you feel like you can reliably manufacture the product and do so at scale that would serve the market need?

Hayley Lewis

Yes. Sure. So as you know, we identified our contract manufacturer, and so we needed to transfer the process over to Thermo Fisher in North Carolina. Behind all of that work was process development and obviously, getting data sets ready for the NDA. So in our pre-NDA package that we submitted for our CMC, we certainly put that all in there with our proposed commercial strategy for managing the program and how we intend to scale up. We asked questions of the FDA in terms of the content that we would be submitting, and it all came back favorably. So we don't -- we didn't identify any issues that we can see with some official or any of our contract manufacturers, actually, and the remaining steps that we have now besides finalizing data sets for the NDA is obviously ensuring that all of our contract manufacturers are ready to host preapproval inspections when the time comes.

Charles Duncan

Okay. And then I wanted to ask a question on cluster headache. But before I do, one -- maybe one last one on Qtrypta, perhaps commercialization, perhaps not. And that is related to the patient cohorts that you think may be most likely to be first targeted by future prescribers. How would you characterize those patients? Maybe Don has some thoughts on that. And then in terms of rightsizing an organization to get to those future prescribers, those maybe top-tier prescribers, what kind of order of magnitude are you talking about?

Steven Lo

Sure. Yes, this is Steve. So perhaps I'll answer the second part of your question, and then we will turn it over to Don. So we -- as I mentioned in the opening remarks, we are in the process of looking at the targeted prescriber base. And we have a good sense of where the difficult-to-treat migraines space is. We know where there are high-volume prescribers. And the way that we would potentially size our targeting and our sales organization, if we were to do it ourselves, would be typically in the top, let's say, seven deciles. And that creates a very small, specialized, focused sales organization that could potentially have some pretty good impact with that targeted group. In terms of the target population, I'll certainly turn that over to Don for additional comments.

Donald Kellerman

No, I think you're -- Charles, you're familiar with our difficult-to-treat publication, and I think that's an obvious place. I would just say parenthetically that at this part of the NDA preparation process, we look at the efficacy in every segment of the population. And so far, the results are very consistent based on things like age and sex and a variety of factors in terms of the efficacy, particularly at the 3.8 milligrams, those seemed to be consistent wherever we look. So I feel very confident that in terms of efficacy, this is a very efficacious product.


Our next question comes from Bert Hazlett with BTIG.

Robert Hazlett

Could you just reiterate the timetable for the cluster headache study with the C213? That'd be helpful.

Steven Lo

Sure. Since Don is in charge of that, we'll -- I'll let Don answer that question.

Donald Kellerman

So I think you probably saw we recently announced that we've started -- we just started enrollment. I think I may have mentioned in our last earnings call that we had our investigator meeting at the end of September. We have some very distinguished academic centers there, which is great, except their process tends to go a little slower in terms of getting contracts and everything in place. But again, we have started. I think things will really start ramping up in January.

Traditionally, cluster studies did not go that quickly in terms of enrollment. We don't think we have a lot of competition out there. We have a good working relationship with a number of patient advocacy organizations. So we're pretty optimistic that we'll get it fully enrolled sort of early to mid-next year. And then, of course, you have to wait for the subjects to have their cluster and treat. It's a single attack. So it shouldn't take long once they get into cluster, and it's not a huge trial. But I think we've sort of projected it'll be pretty much next year to complete the trial.

Again, this is a really great opportunity for us to really show our stuff in terms of fast onset because, if you remember the Phase I results, the subjects -- all 20 subjects had seat pad levels of zolmitriptan in their systemic circulation greater than the Cmax for 2.5 milligram oral by 5 minutes after application. So again, we think this might be a really good place to demonstrate how quickly the onset of effect is on cluster headache.

Steven Lo

Again, this is Steve. I'll just add -- sorry, I'll go ahead and just add a closing comment related to that. We've been highly encouraged and supported by the key opinion leader community around this and moving forward with this study.

Robert Hazlett

Thanks, Steve. I appreciate the additional color, and nice to have you steering the ship on the call. And just love to get your perspective on the potential for commercialization for not only Qtrypta but for the platform. What might partners look like in an optimal scenario, both for Qtrypta? What are you looking for? What are core competencies there? And then maybe for the broader platform as well, what might be an optimal partner there?

Steven Lo

Sure. So I'll start with Qtrypta. One of the great parts about what we offer right now, and since you asked a great question about cluster headache, is we're dealing with prescribers and key opinion leaders who essentially are the same. They -- they're treating both indications, if you will. And so there's quite a bit of efficiency there from a commercial standpoint.

In terms of the bar that we set with the commercial partner, certainly, because we believe that we have such great data that differentiates ourselves, our product in the acute setting, we want to make sure that a partner is going to give this product the time and the effort that's needed for it to be successful. So we certainly are looking for a partner who has expertise in this space, number one. Secondly, has a -- has or is building a commercial footprint to be able to market and sell that. Obviously, if they don't have that footprint, it's just as easy for Zosano to do that ourselves and the time frame that would need to happen. And of course, I think it's safe to say we want to make sure that the economics are favorable to the company as well. So that's the bar that we've set for Qtrypta.

As it relates to other partnerships, I think this is actually in our platform. I think this is actually a great opportunity to introduce you to Dushyant Pathak who recently joined us. He's working on that. And he can certainly just highlight an area or so that we're focused on in terms of partnerships. Dushyant?

Dushyant Pathak

Sure. Thanks, Steve, for the opportunity to address the question. We're looking at a variety of opportunities, I think, to talk about the type of partner we're looking for. We're looking for folks that bring complementary expertise to our leadership in developing this intracutaneous microneedle capability. So we'd look for folks that have complementary clinical development capabilities to ours in particular indications that we think are particularly suited to the advantage of the platform. Certainly, Steve already mentioned that we're looking at the vaccine space. The point that I might make there is not just prophylactic vaccines, but we also think there are advanced opportunities in the therapeutic vaccine space. And particularly, we think opportunities in the immuno-oncology and broader cancer space.

So it's early days yet, but we've begun interactions both directed in terms of targeted approach with particular companies but also through attendance at the typical slate of conferences. And we're seeing interest and taking those conversations forward. So I'm very encouraged by what we're seeing out there in terms of interest in our groundbreaking platform.


[Operator Instructions]. Our next question comes from Anthony Vendetti with Maxim Group.

Anthony Vendetti

Just a little more detail, if possible, on Qtrypta. So the NDA filing is on track by the end of December. Walk us through, I guess, sort of the best-case scenario, which looks like approval by the end of 2020. What could go wrong? And push it out a little bit, not necessarily go wrong, but what could cause you to push out maybe until beginning of 2021 in terms of approval?

Hayley Lewis

Anthony, yes. So yes, if we file by the end of this year under the current PDUFA time lines and requisite meeting milestones that they have, meaning the FDA, they'll take about 74 days to go through all the elements of our NDA, as Steve had indicated earlier, and they'll let us know that it has been accepted for filing. After that, they'll start queuing up all of the inspection centers and sending them out to not only the CMC manufacturers but also to some of the clinical sites, I would expect, go through their surveillance and the due diligence on all of those sites.

We anticipate a PAI here as well in Fremont because we made most of the stability-indicating batches that will be informing the basis of our shelf life. So I do expect a first-cycle review. We've employed a lot of consultants who have a lot of industry experience who have advised us not only in our CMC development but also our clinical development program. And they've certainly vetted our data sets in our pathways, and they've told us that we seem to have checked off all the boxes. And so I believe that a 12-month review is perfectly reasonable to expect. And we look forward to getting into label negotiations per those time lines in about a year from now, and that's always a good indicator that you're about to be approved. So we're fully expecting to get approval by December of next year.


Thank you. That concludes today's question-and-answer session. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

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