Earnings Call: Q3 2018

Nov 8, 2018

Good day, and welcome to the Foamix Pharmaceuticals Third Quarter 2018 Earnings Call. This conference is being recorded. At this time, I'd like turn the call over to Michael Wood with LifeSci Advisors. Please go ahead. Thank you, and good morning, everyone. Yesterday, Foamix issued a press release with earnings results and a corporate update for the Q3 ending September 30, 2018. Press release is available on the Investor Relations page of the company website, omixpharma.com. The call is being recorded and webcast replay will be available on the website over the next 2 weeks. Before we begin the formal remarks, let me remind you that some of the information in the news release and on this conference call and webcast contain forward looking statements that involve risks, uncertainties and assumptions that are difficult to predict, words that express and reflect optimism, satisfaction with current progress, prospects or projections, as well as words such as believe, intend, expect, plan, anticipate and similar variations identify forward looking statements, but their absence, however, does not mean that a statement is not forward looking. Such forward looking statements are not a guarantee of performance, and the company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in Foamix's filings with the Securities and Exchange Commission. These forward looking statements speak only as of today's press release and conference call, November 8, 2018, and the company undertakes no obligation to publicly update any forward looking statements or supply new information regarding the circumstances after the date of this call. Participating in today's conference call are Dave Domzalski, Chief Executive Officer of Foamix and Ilan Hader, the company's Chief Financial Officer. In addition, Doctor. Iain Stewart, the company's Vice President of R and D is also on the call and he'll be available to answer questions during the Q and A session after the prepared remarks. So with that, I will turn the call over to Dave Domzalski. Dave, please go ahead. Thank you, Michael, and thanks to everyone for joining our call this morning to discuss our financial results for the Q3 9 months ended September 30, 2018. Past 2 months here at Foamix has probably been the most exciting period in the company's history. We made substantial progress advancing our 2 lead late stage product candidates, announcing positive Phase 3 data on both FMX101 and FMX103, which we are developing for acne and rosacea respectively. We now have line of sight to FDA approvals and commercialization in dermatological indications with very large global patient populations in need of differentiated more effective treatment alternatives. Foamix is also well capitalized. In September, we strengthened our balance sheet with a successful equity follow on offering, which generated net proceeds of approximately $75,000,000 This brought our cash and investments as of September 30 up to over $110,000,000 Based on current projections, we estimate that we have sufficient cash to fund planned operating expenses and capital expenditure requirements through mid-twenty 20. Let me begin with the most recent development first. Yesterday, we announced positive top line clinical results from our 2 Phase 3 studies, FX2016-eleven and FX2016-twelve that we're evaluating FMX103, a 1.5% minocycline foam candidate for the treatment of papulopustular rosacea. We went over the details of the results in yesterday's call webcast. Let me summarize the important points here. There were 2 identical Phase 3 studies, each had 2 co primary efficacy endpoints, which were 1, the mean absolute change from baseline in inflammatory lesion counts in each treatment group at week 12 and 2, the proportion of patients achieving clinical success at week 12 based on an investigator's global assessment or IGA score. FMX103 demonstrated highly statistically significant improvements compared with vehicle foam on both of these efficacy endpoints and in both trials. We also looked at the percent change in inflammatory lesion count at weeks 4, 8 and 12. This was a key secondary endpoint in the trial and FMX103 was also shown to be statistically better than vehicle at all time points for both studies. FMX103 was generally found to be safe and well tolerated. Treatment emergent adverse events were few in type of frequency, most were mild in severity. Patient discontinuations due to treatment related adverse events were very low in both studies. Patients who completed participation in either of these studies were also given the option to continue into a long term open label safety extension, which is known to study FX2016-thirteen and that's to evaluate the safety of FMX103 for up to an additional 9 months. Enrollment in this extension study is also complete having enrolled 505 patients. The results from this long term safety study are expected to be reported in the first half of next year. We were joined on our conference call yesterday by Doctor. Linda Steingold, who is a practicing dermatologist at the Henry Ford Health System in Michigan. She is also an advisor of Foamix and a principal investigator in one of our studies for FMX103. Doctor. Steingold did not receive remuneration for her participation on the investor call yesterday. Doctor. Steingold made a number of important points about the FMX103 clinical data and her own experience in treating papulopustularization. She specifically drew attention to one of our 2 primary endpoints, which is the proportion of patients achieving clinical success at week 12, again identified as through the IGA scoring system and stated that in designing the trial, we had set the bar very high by expecting patients who had entered the study with moderate to severe disease to become clear or almost clear by the 12 week time point. The fact that approximately 50% of the patients in both trials achieved this level of disease resolution was in her opinion particularly impressive. Abstein will discuss the physical attributes of the foam itself and the fact that our foam vehicle has a moisturizing effect, which she emphasized, is particularly important for managing the dryness and irritation systems that are associated with rosacea. And she also talked about the tremendous emotional impact that rosacea can have, particularly on adult patients. The webcast from yesterday's conference call along with the slides summarizing that data have been archived on our website if you have not yet had the opportunity to view them. With positive statistically significant Phase 3 results from 2 studies now in hand, we believe we have satisfied the efficacy requirements to support an NDA in moderate to severe papulopustular rosacea. Once we have the data from the long term safety study, we should be in a position to file the NDA and our goal is to make the submission to the FDA in the second half of next year. A positive Phase 3 data that we reported yesterday for FMX103 came in on the heels of the data we reported in September from the confirmatory Phase 3 trial evaluating FMX101, our 4% minocycline foam that we are developing for the treatment of moderate to severe acne. This trial, FX2017-twenty 2 had similar co primary endpoints to the rosacea studies I just described. Absolute change from baseline and inflammatory lesion count at week 12 and investigator global assessment treatment success at week 12. Again, we were very happy to report that Study 22 met both of these co primary endpoints demonstrating highly statistically significant results for FMX101 versus vehicle. And the safety profile for FMX101 was again generally favorable and consistent with that determined from 2 prior Phase 3 studies. For more details on these results with FMX101, I would refer you to the press releases we issued on September 11 October 1, as well as the slides from the conference call we held on September 12, and these are all available on our website. In terms of the regulatory path forward for FMX101, the positive data from Study 22 taken together with the results from the earlier Phase 3 study, Study 5, which we reported in 2017, means we now have 2 confirmatory Phase 3 studies in moderate to severe acne. We plan to file an NDA in the United States for FMX101 by the end of the year. Our confidence and the approvability of FMX101 is based not just on strong clinical data package we have compiled, but also on our recent interactions with the FDA. We held a Type B pre NDA meeting with the agency back in February to discuss the submission of the application for FMX101. During the meeting, we discussed various matters relating to the overall development program of FMX101, including CMC, non clinical toxicology studies, format and other information required for the submission. There were no unexpected action items requested of the company during the pre NDA meeting or in the meeting minutes that we received later. So if all goes to plan, Foamix will be in a position to potentially launch 2 products into major dermatology markets within about a year of each other. It is worth noting that at this point we still retain full global rights to both programs and we have assembled a team that is highly experienced in drug development, clinical development and commercialization. I'd now like to turn the call over to Alain Hadar for a review of the financial results. Alain? Thank you, Dave, and good morning, everyone. I'm going to focus on the Q3 results ended September 30, 2018. 9 month results are detailed in our 10 Q, which was filed yesterday evening. Revenues for the Q3 2018 decreased by $36,000 or 4% to $855,000 in the 3 months ended September 30, 2018. The change is due to a decrease in development service payments, which was offset by an increase in royalty payments from Bayer and LEO for sales of Financias. Research and development expenses for the 3 months ended September 30, 2018 were $13,100,000 representing a decrease of $2,700,000 or 17.1 percent compared to 15 $800,000 for the 3 months ended September 30, 2017. The decrease in research and development expenses resulted primarily from a decrease of $3,600,000 in costs relating mainly to FMX101 and FMX103 clinical trials, offset by an increase in payroll and payroll related expenses and increase in payments to advisers and consultants. General and administrative expenses for the 3 months ended September 30, 2018 were $3,300,000 compared to $2,900,000 for the 3 months ended September 30, 2017. The increase in G and A expenses year over year resulted primarily from an increase in payroll and payroll related expenses and an increase in expenses related to the company's Board of Directors. The loss for the 3 months ended September 30, 2018 was $15,500,000 or $0.38 per share basic and diluted compared to $17,600,000 or $0.47 per share basic and diluted for the 3 months ended September 30, 2017, a decrease of $2,100,000 or 11.9 percent. At September 30, 2018, we had 110 $500,000 in cash and investments compared to $76,400,000 at December 30, 31, 2017. We anticipate that its existing cash and investments will be sufficient to fund planned operation operating expenses and capital expenditure requirements through mid-twenty 20. For additional details on our financials, please refer to the Form 10 Q and the financial statements filed with the SEC. I will now hand the call back to Dave for closing remarks. Thanks, Alain. So in closing, 2018 has been a productive year for Foamix. With positive Phase III data in hand on our 2 lead programs, we can now turn our attention to regulatory submissions and preparations for commercial launches. Both markets are large and underserved to patients and healthcare providers. The anticipated approvals for FMX101103 in acne and rosacea will literally transform our company. We have put the resources and the team in place to transition to commercialization and we see a great opportunity to serve the dermatology community as well as create value for our shareholders. And with that, we will now open the call to your questions. So, operator, I'll turn it back to you. Thank And our first question will come from Vamil Divan with Credit Suisse. Great. Thanks so much for taking my questions. So just a couple on the financial side after the call yesterday on the clinical side. So just one in terms of the royalty revenues, it came in a little bit lighter than we were expecting. Maybe you can just give us some sense of how to think about that over the next few quarters here as we update our model? And then similarly, I guess just thinking about 2019, I don't know how much color you want to provide today, but maybe you can just give us a sense of how to think at least about the R and D expenses given you're wrapping up things on the main pivotal trials, but still have the long term trial going on with 103? Thanks. Yes. Before I turn it over to Alain to provide some hold on a second. Before I turn it over, let me just some thoughts and color. First one on the royalty itself. Now, the Fenacia foam has done reasonably well in the marketplace. It's been a product that's gone through a series of challenges since it was approved for distribution. As you know, Bayer, who obviously was the company that previously held this product. Initially, the product is off to a really good launch. And then their dermatology business was up for sale for well over a year. The business had flattened out. And then, obviously, they decided to keep the business for some time and then we saw an improvement in the performance for the phone product. And recently, the transaction was completed for the business to be transferred from Bayer to LEO Pharma. So we would expect to see a bit of a pause or a bit of a flattening effect for a period of time. This is fairly common anytime there is a transition from one company to the next. All that being said, we're encouraged certainly by the prospects of Leo's commercialization capabilities. We know they're excited about this product and their portfolio. And we would certainly look forward to an increased emphasis and performance for the brand moving forward. This is usually part of what happens when you see these types of transactions, change of the guard, transitioning commercial activities, but we're certainly feeling good about what to expect on a go forward basis. I'll turn it over to Alain to provide any more color on the royalty payments itself and R and D expenditures. Thank you, Dave. Regarding royalties, not a lot to add. We do not foresee that this revenue rate will change dramatically going into 2019, as they mentioned. Regarding R and D expenses, we do not give guidance for future R and D expenses. But, Rami, I will be more than happy to have a 1 on 1 call and review your model and discuss future plans and expense for R and D. Okay. Thank you. Yes. And let me I think again just to provide a little more color as we talked about in the past. We are winding down our expenditures for both these programs. I mean, 101 is basically done. 103, we do have the long term safety study, which will run into next year. But we're ahead of our initial plans for enrollments. I think as you know, we announced actually the completion of enrollment in the safety study before we actually completed the efficacy portion for FMX103. So we're on a really good pace. We'll obviously have expenditures associated with the long term study, but a lot of the heavy lifting is behind us. So we anticipate to continue to see those R and D expenditures wind down a bit. Obviously, we have commercial expenditures that over time will increase. The large expenditures or expenses for commercialization usually are right around PDUFA, which is really around deployment of field forces, which we're quite a ways away from that. But even so, the numbers would be relatively low compared to other therapeutic classes. So, yes, hopefully that gives you a sense of where we are. I want to reiterate again, we as of the end of the quarter with over $110,000,000 in the bank, that gives us the wherewithal to continue to fund 101, wrap that up, wrap up 103, file both of those NDAs and conduct all Thanks, Thanks, Bhavan. And our next question will come from Louise Chen with Cantor Fitzgerald. Yes. Thank you for taking my question. This is Sudan Loganathan in for Louise. So I had a question regarding how do you plan to stage the back to back launches of FMX101 and FMX103? And what efforts will be the most challenging during that time and the preparation that you're taking now to ease that launch phase? And then you mentioned just recently about your current cash position That gets through both launches, correct? And then what would be the timing and any interest on partnerships, agreements? And any color on where you're looking in that endeavors? Okay, Sudan. I'm going to try to capture all this. Bear with me, I'm jotting you Sam. So, first of all, regarding the staging of the launches for 101 and 103. So, they'll be about a year behind each other, which works we're excited about the potential for both of these brands. Both of these products, these are large unmet needs, these are $1,000,000,000 acne is a multi $1,000,000,000 category, rosacea is a $1,000,000,000 to $1,500,000,000 marketplace, significant unmet needs. And so we really like the opportunities for both of these. In terms of the launch activities, one of the great things about it is that we get very good synergies. It's the same target audience, first of all, it's the dermatology community. As I've shared in the past, there's 15,000 dermatologists in the United States roughly and of that about a third of them, 5000 to 6000 generate 70% to 80% of the prescription volume. It's the same target audience. It is the same molecule, the topical minocyclophones, just different concentrations of different indications. But these the same group of physicians sees active patients as well as rosacea patients. So we would use in very, very large parts the same commercial efforts. So I don't envision that we would need duplicative marketing teams. We certainly would use the same sales force. There's a lot of overlap in terms of the products that are used for acne and rosacea. So, the commercial footprint, if you will, that we put in place, which again we are quite experiencing to do this quite efficiently, But the commercial team that we deploy for the launch of FMX101 would have to do the same thing that we would deploy for FMX103. Let's just assume that that launch was about a year behind. So we get to focus on the initial launch for 101 And then 103 is just putting another product in the bag, the same product, same target audience, just different indications, different concentration. So we get really, really good economies of scale when it comes to that. In terms of where our focus will be, over the next 12 months or so, we will very much be on market preparation, heavy on medical education, medical communications. We've got great scientific messages to share with the dermatology community, continue to create awareness about Foamix, about our products. But again, this is these are low cost expenditures. We do not have to create a disease state and spend time educating that. We do not need to go through some major consumer campaign to create awareness. Everyone the dermatology community is quite aware of acne and rosacea. Patients are quite aware of acne and rosacea. They're just looking for better alternatives. And we think that we can provide that with our products. So heavy on medical education and medical communication over the next 12 or so months. As we get closer to PDUFA, that's when we'll start getting ready for the sales organization. And we haven't made decisions on how that will ultimately look yet. But as I've shared historically, general size is somewhere between 50 100 representatives. So I'm quite confident it will be less than 100, somewhere in the 60 or 75 generally is the sweet spot for these size teams. And that comes quite later in the game. So I hope I've addressed some of your questions around the launch and launch preparations. Again, just want to underscore, we have a team here at Foamix, which has combined over 80 years of experience launching products in dermatology specifically, including myself. So we're confident in our ability to do this effectively and efficiently, and we're looking forward to that. I'd say, lastly, regarding partnerships, obviously, our focus is on the U. S. Market itself for our clinical development and any commercialization. We're certainly open to partnerships ex U. S. And we continuously have dialogue with potential partners in that regard. We have been doing so for some time. I have talked about this in the past. So if those right opportunities avail, we would certainly be open to that. And I'll leave the last part is over since I've taken the CEO post a year and a half ago, our focus has been on executing on these trials 101 and 103, managing our cash burn prudently, which we've done a very good job of, and then preparing for our next round of products in our pipeline. And I've always said that I believe that our platform, we're just scratching surface of what we can do both ourselves as well as the potential to partner with other organizations. And so, we continue to work on that. We really like the partnership that we have with Leo, formerly with Bayer. And so the opportunity to have additional partnerships like that, we are certainly open to and we'll keep you posted as they avail themselves. Okay, thanks. Appreciate it. Got it. And we will now hear from Bill Mott with Cowen and Company. Hi, thanks and congrats. So looking through the oral doxycycline prescriptions, it's not entirely clear to us how many generic oral antibiotic prescriptions are actually for acne given the wide range of indications they treat. What's your best estimate on the generic oral antibiotic prescription market or volume number for acne? And then secondly, on the launch, do you plan to be able to launch for acne right at product approval? Or will there be contingent offers to the sales force? Or any other activities that will be held off on until we have that approval in hand? Thanks. Yes, sure. First of all, I'll take the latter question first on timing. A lot of this is going to hinge on the PDUFA data itself. I think the general practical approach is to have a high, high level of confidence on approval before you look to deploy a sales organization, certainly for a company of our stage. I've seen we all know of companies that have and have to jump the gun on this. They start getting too aggressive in building out their infrastructure and then if there's delays or anything else, then you're just sitting on a cost against the organization without the ability to generate any revenue. So again, we've done this several times. We can use a whole host of mechanisms to have a sales organization teed up ready to go, but not actually deploy them until we know for sure that we're looking at approval. And that is the way that we would approach this. I think the other part in terms of when we would actually launch the drug itself will also hinge on timing without getting too far ahead of the schemes, if you will, I would not envision us launching a product, say, during the holiday season at the end of next year. So I've always said that assuming a normal review and no challenges that we could be launching the product anywhere from the very end of next year to the beginning of 2020. A lot of that is just going to hinge on the PDUFA itself and the timing. I think the other key points, again, having done this many times is, you need time to once approval is in place to get the product loaded and through the trade down to the pharmacy level. I will say and I'll provide more color on this, there's lots of things that you can do during that time period to help with the potential uplift of a product at launch. And I'll talk more about those potential strategies as we get a little bit closer to that. So it's not as if we would be sitting around waiting until we can have a launch meeting. There's over the years, I've learned there's lots of ways to lots of things to do to prepare the market to set your chances up for success as much as possible once it actually is available at the pharmacies. Coming back to your question about the antibiotic markets, what I will share is that when you take a look at the space and it's in our materials, it's roughly around 5,000,000 prescriptions a year in the category that are looking at the branded topicals and oral therapies. It's about a $4,000,000 to $1,000,000 split, dollars 4,000,000 or so are the branded topicals, roughly around $1,000,000 or so are the branded oral antibiotics. In terms of how many of those ultimately then get substituted in the generic space itself, haven't spent a lot of time on that because in the end, if a prescription is written for a generic product, if the prescriber specifically writes the generic, then I don't necessarily view that as being a market opportunity for us or a target opportunity for us. So I'm looking at the branded space itself, which is quite large, 5,000,000 prescriptions that are out there between branded topicals and orals. It's a big category. Again, I believe that we have key potential benefits for patients and providers and payers with a product like FMX101 and FMX103. And we've talked about those. We're obviously demonstrating very strong efficacy for acne. We're certainly showing it in rosacea as well. We're showing a really, really strong safety profile. We're not obviously seeing any of the systemic side effects associated with these therapies. And so when you take a look at it at the market opportunities themselves, we believe that obviously a logical place is to compete against the oral antibiotics because ours is a topical version without the systemic side effects you would associate with those. But because it is a topical product, that's usually the first line of defense that health care providers use to treat both acne and rosacea. So we believe that we could compete in both of those spaces for both acne and rosacea. And that's why we're so bullish about the opportunities in both categories. Thank you very much. Welcome, Bill. Thanks. We will now hear from Ram Selvaraju with H. C. Wainwright. Hi. This is Julian on for Ram. Early in the Q and A, you talked a lot about the overlap in synergies between the 101 and 103 launches. Are there any key differences in strategy here that we should be aware of? Well, the synergies are really operationally driven. And I think that's a key thing, especially when it comes to A and P expenditures and cash utilization. The differences are obviously in the indications themselves, as well as the disease states. So as we talked about, one of the reasons that our product FMX103 is so effective in treating rosacea is because rosacea unlike acne, which is both a bacterial condition and inflammatory condition, rosacea is a chronic inflammatory condition of the skin. Minocycline has significant anti inflammatory qualities. And so it works very well. We've obviously seen that in the data. Whereas for acne, because it is an antibiotic, it's our topical minocycliform is both reducing inflammation and killing the P. Actis or C. Actis bug itself. So synergies are operational. Differences are obviously the disease states and the key what will be the key scientific messages and marketing messages for those brands once we get the launch. Okay, great. Thanks very much. Welcome. And with no further questions, I'd like to turn the call back over to management for any additional or closing remarks. Well, thank you, operator. Again, I want to thank everyone for taking time out of their day to join us on this call. As I've shared before, it's a really, really exciting times for us here at Foamix. We're thrilled with the results that we've seen from 2 Phase 3 programs where we've shown strong statistical performance for FMX101 and FMX103 against vehicle. It's not often that you see a company at our stage have not just 1, but 2 products that have gotten over that hurdle and we could be looking at 2 potential products available in the market inside of a year of each other between 2019 2020. Again, I want to thank all the patients that have participated in our trials for both 101 and 103. I want to thank the clinical investigators and their support teams. And obviously, I want to recognize and thank everyone at Foamix for a tremendous job done in getting us to this point. I want to continue to thank our shareholders for their continued confidence and support of our work. Look forward to providing everyone with updates as we progress on our plans for these programs. And as I mentioned on our call yesterday, I also look forward to providing more color and visibility into not just the opportunities for 101 and 103 and acneurization, but also our pipeline, which we're aiming to do and provide an event sometime next month. We'll keep you posted on the details for that. So with that, again, thank you to everyone for joining on this call. Have a great rest of the week and look forward to speaking with you soon. Take care. And once again, that does conclude our call for today. Thank you for your participation. You may now disconnect.