Earnings Call: Q1 2018

May 9, 2018

Good day, and welcome to the Foamix Pharmaceuticals First Quarter 2018 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Michael Wood of LiveX Advisors. Please go ahead, sir. Thank you, and good morning, everyone. Yesterday, Sunnix issued a press release of earnings results and a corporate update for the quarter ending March 31, 2018. The press release is available on the Investor Relations page on the Foamix website atfoamixformat.com. This call is being recorded and webcast. A replay will be available on the company website for 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 the conference call 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 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 SEC. These forward looking statements speak only as of the date of today's press release and conference call 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 call are Dave Domzalski, Chief Executive Officer of Foamix and Alain Hadar, Chief Financial Officer. With that, I'll turn the call over to Dave Domzalski. Dave, please go ahead. Thank you, Michael, and good morning, everyone. We have had a strong start to 2018 with considerable progress in the clinic for our 2 lead therapeutic candidates as well as on operational and financial fronts. Let me begin with FMX101, which is our 4% topical minocycline foam that we are developing for moderate to severe acne. You hopefully have seen the news that earlier this week, we announced that the final patient has been enrolled and dosed in the 3rd Phase 3 study for FMX101. This is called Study FX2017-twenty 2. This is another important milestone for us. A total of 1507 patients have been enrolled in this study. As a reminder, we enrolled the 1st patient in August of last year. So we're pleased with the pace of enrollments and the interest shown by patients and physicians. Getting to full enrollment means that we remain on track to announce the top line results in the Q3 of this year. On February 14, we held a Type B pre NDA meeting with the FDA. The purpose of the meeting was to discuss the submission of a 505(2) application for FMX101. We received the final FDA meeting minutes on March 8. During the meeting, we discussed various matters relating to the overall development program of FMX101, including CMC, non clinical toxicology studies, formats and other information required for the NDA submission. There were no unexpected action items requested of the company during the pre NDA meeting or in the meeting minutes. Overall, we thought the meeting went well and we were pleased with the outcome of the session together. If the results for Study 22 meet our expectations, they will form part of our planned NDA for FMX101, which is targeted for regulatory submission to the FDA before the end of this year. To put our regulatory strategy for FMX101 in context, let me briefly review what we have accomplished in the past year or so with this program. You will recall that we announced top line results from our 2 Phase 3 clinical studies, Study 4 and Study 5, in 2017. In the intent to treat analysis, FMX101 demonstrated statistical significance compared to vehicle on both co primary endpoints in trial 5. However, we did not demonstrate statistical significance on 1 of the 2 co primary endpoints, IGA success and Trial 4. We discussed these data with the FDA and the agency confirmed with us that statistically significant findings from a third study would constitute replication of the results from Study 5 and would be sufficient to establish an efficacy claim for FMX101. This is the purpose of this 3rd Phase 3 study, Study 22, which is now ongoing and now fully enrolled. We reached concurrence with the FDA on the design of this third study, which is very similar in design to the prior 2004 and 2005 studies. It is double blind, vehicle controlled and patients have been randomized 1 to 1 to receive either FMX101 or vehicle with once daily treatment for 12 weeks. Co primary endpoints for Study 22 are the same as studies 4 and 5. They are first, the proportion of patients achieving success at week 12 based on an investigator's global assessment. Success is defined as a score of clear or almost clear, which is a score of 0 or 1 and at least a 2 category improvement from baseline. And the 2nd co primary endpoint is the mean change from baseline in inflammatory lesion counts in each treatment group at week 12. Safety evaluation will also include reported adverse events, assessments of tolerability, clinical lab tests and vital signs. Our final patient enrollment for Study 22, which is 1507 patients as I mentioned previously, this is more than 3 times the sample size of each of the previous Phase 3 studies. The other news on FMX101 this quarter was that we announced in January positive safety data for our Phase 3 open label safety extension study evaluating FMX101 in moderate to severe acne for a treatment period of up to 1 year. The data was presented in a poster session at the Winter Clinical Dermatology Conference in Hawaii. The open label safety extension enrolled a total of 657 patients, all of whom have completed 12 weeks of FMX101 or vehicle treatment in the preceding double blind phases of Study 4 or Study 5. Patients continued for up to an additional 40 weeks of open label treatments with FMX101. A total of 291 patients completed a total of 52 weeks of FMX101 therapy, which is in excess of the subject sample size requirements specified in the regulatory guidance for this type of safety evaluation. No serious drug related adverse events were reported during the open label safety extension, validating earlier data demonstrating that FMX101 appears to be well tolerated with an acceptable safety profile. Non dermal adverse events were comparable in type of frequency with those reported during the double blinded portion of the 2 Phase 3 studies. Application site adverse events occurred in less than 2% of patients during the 40 weeks of open label treatment with only 4 patients discontinuing the study for an application site adverse event. Efficacy was also measured as a secondary endpoints in the open label study for FMX101. The data provided some evidence that the beneficial effect of FMX101 appeared to persist out to 12 months as measured by improvements in the patient's IgA scores as well as reductions in both inflammatory and non inflammatory lesions. This data was from observed cases based on summary statistics and it is important to note that we are not making any claim of statistical difference between any treatment arms in this open label study. We went into quite a lot of detail on these efficacy results on our last call. So I will refer you back to our press release from February 28 for further details. Turning now to FMX103, our 1.5% minocycline foam, which is in development for moderate to severe papulopustular rosacea. FMX103 is being investigated in 2 identical double blinded studies, which are studies FX201611 and FX201612, measuring efficacy with once daily dosing over a 12 week period. We announced the enrollment of the first patient in these Phase 3 studies last June and we expect to have top line results from the blinded portion of both trials by the end of Q3 or in the beginning of Q4 of this year. Similar to the acne studies, patients in the FMX103 studies have the option to enter into an open label safety extension, which we refer to as Study 13. The purpose of this study again is to provide long term safety data as part of a planned NDA submission. I'm pleased to note that this open label extension study has now enrolled the required number of patients and we are no longer rolling patients over from either of the 2 ongoing double blind efficacy studies. The entire Phase 3 program for FMX103 including safety study 13 is expected to be complete next year in 2019. So those are our recent clinical developments. On corporate developments, we announced in April that we entered into a securities purchase agreement with OrbiMed for a registered direct share offering. We agreed to sell OrbiMed approximately 2,900,000 of our ordinary shares at a purchase price equivalent to roughly $5.50 per share, which represented a premium to our share price at the time. Gross proceeds from this transaction were $16,200,000 OrbiMed, as you likely know, is one of the leading institutional healthcare investors worldwide and we are grateful to have their support as a new shareholder. With that, I will now turn the call over to Ilan to discuss our financial results. Thank you, Dave, and good morning, everyone. Revenues for the Q1 ended March 31, 2018 were $906,000 compared with 927,000 dollars in the same period of 2017. The decrease is mainly due to a decrease in royalty payments in the amount of $83,000 from Bayer or sales of Finacea form. Research and development expenses for the Q1 of 2018 were $22,800,000 compared to $12,700,000 in the Q1 of 2017. The increase in research and development expenses resulted primarily from an increase of $9,100,000 in cost relating primarily to FMX101 and FMX103 clinical trials as well as increase in payroll and payroll related expenses, including share based compensation due to a change in the measurement of the share based compensation expenses of a consultant and an increase in headcount and salary raises. Selling, general and administrative expenses for the Q1 of 2018 were $3,500,000 compared to $2,800,000 in the Q1 of 2017. The increase in selling, Jelan and administrative expenses resulted primarily from an increase in payroll and other payroll related expenses, including share based compensation, mostly due to an increase in headcount, salary raises and an accounting modification relating to the share based compensation session of a consultant. The company recorded a net loss for the quarter ended March 31, 2018 of $25,700,000 or $0.69 per share basic and diluted compared to a net loss of 14,400,000 dollars or $0.39 per share basic and diluted in the quarter ended March 31, 2017. Net cash used in operating activities was 20 $3,200,000 in the 3 months ended March 31, 2018 compared to 12 $100,000 in the 3 months ended March 31, 2017. The increase was attributable primarily to increase in activity related mostly to clinical trials and payroll expenses. We expect the net cash used in operating activities to remain at this level in the near term due to ongoing Phase 3 clinical trials for FMX101 and FMX103 and decrease towards the end of the year as we remain on track to announce the top line results for FMX101 in the Q3 of 2018 and for FMX103 towards the end of the Q3 or the beginning of Q4 of 2018. At March 31, 2018, we had $53,100,000 in cash and investments compared to 76 $400,000 at December 31, 2017. As Dave mentioned, subsequent to the end of the quarter, we completed the financing transaction with Ormimed, which raised a further $16,200,000 in gross profit. We believe based on our current business plan that our existing cash and investments will fund operating expenses and capital expenditures requirements through the completion of our 3rd pivotal Phase 3 clinical trial for FMX101 and our 2 pivotal Phase 3 clinical trials for FMX 103. For additional details on our financials, please refer to the Form 10 Q and financial statements filed with the SEC. I will now hand the call back to Dave for closing remarks. Thanks, Elan. I'm very happy with the progress made by the Foamix team so far in 2018. The remainder of the year is going to be busy with a number of potential value enhancing milestones, including the confirmatory Phase III data readout for FMX101 and the Phase III data readout for FMX103. So thank you to everybody on this call for joining us today and for your continued support as we work to execute on our plans and deliver long term value and sustainable growth. That concludes our prepared remarks and we are happy to now open the call for questions. So I'll turn it back to the operator. Thank you. We will now take a question from Bill Morn of Cowen and Company. So as we near the readout for the final pivotal acne trial, What mechanisms if any beyond the normal training of the sites are available to you to ensure that sites continue to measure patients' response accurately and to make sure that nothing changes as the trial progresses? And then have you had still blinded data that gives you a hint as to how the trial is progressing? Thanks. I'll take the first the second part of the question. Regarding data, obviously, the data is blinded. We will not be commenting on any data until final results are tallied, unblinded and obviously we'll communicate that to the entire investment community immediately as soon as we have that. Regarding the operational oversight question, this has been a major emphasis for our company since we received the results from the first two Phase 3 studies last spring. I'm quite encouraged by the significant work that our clinical operational team has deployed in working with our CRO. We have put in place several mechanisms to do the best we can to ensure that there's continuity amongst the investigators, especially when it comes to assessments of IGA rating scores, which as we've discussed in the past is one of the more subjective endpoints. And IGA success is the one endpoint that we missed on one of our 2 initial Phase 3 studies. So a couple as a reminder, a couple of initiatives that we put in place is that, first of all, we have significantly increased our own internal manpower through employees as well as full time consultants, that have been deployed and that are literally out meeting with investigators, on a daily basis. We have board certified dermatologists on each coast that are working with our CRO with the investigator sites. We have a dedicated clinical research associate team. We have a data monitor in house that in real time is monitoring the enrollment of patients. We have colleagues that have run our POTS Phase 2 studies, including our Phase 2 study in Germany from in Israel that literally come here on a weekly basis and that are working with sites. So we have roughly a half dozen or so internal colleagues that are out at the sites on a daily basis, both visiting the sites on our own and monitoring our clinical research organization on a daily and weekly basis. So that's just the manpower component of the work that we've done. Additionally, we have put in place multiple refresher training assessments, if you will. From the beginning of this 3rd Phase 3 study, we had 2 investigator meetings to obviously train the investigators and to get them set up so they can begin seeing patients enrolling them at this study. We have had 6 additional refresher trainings that have taken place and we have a few more that are scheduled before the we anticipate the study will come to a conclusion. And we're doing this for both acne for both the acne program as well as the rosacea program. So these are just some of the initiatives that we have in place. We're out there in the field with investigators. We've had multiple training sessions for the investigators. We use real time data to provide this assessment. We've had multiple initial investigator meetings as well. So hopefully that provides a bit more detail on what we're doing to try to mitigate the inherent risks that are associated with this more subjective endpoint. Absolutely. And one more follow-up, if I may. So for the rosacea enrollment, now that you're fully enrolled for the safety extension with enrollment for the efficacy still ongoing, did the safety extension enroll more quickly than expected? Or is this just the case of having built in margin on enrollment rates? And actually, yes, that's the question. Yes, I'd say it's a bit of both. Obviously, we took a very similar approach in setting up the what we anticipate to be sample size in the enrollment pace for the safety extension rosacea as we did with acne. So we've seen very good enrollment for rosacea. We've seen low discontinuation rates for the study. And so we've obviously been able to roll patients into this long term extension at a pretty rapid pace. I think that's an encouraging sign that patients obviously want to continue in the study. So we've hit the number that we felt that would be more than sufficient and making sure that we get the requisite number of patients completed per regulatory guidance. Again, it will be the same roughly around 100 subjects will need to complete 1 year of exposure to the drug. So we've hit the numbers that we anticipated or we were shooting for at a pretty good pace. And so we no longer need to roll any more patients over into the safety extension. All right. Thanks for taking the questions. You're welcome. Our next question comes from Rohit Vanjani of Guggenheim. Please go ahead. Hi, David and Ilan. Thanks for taking the questions. The OrbiMed offering you mentioned was $6,200,000 growth. What was the net cash from that offering after expenses and other costs? We are still gathering the exact expenses, but you can expect it to be roughly around $16,000,000 $16,000,000 Okay. And OpEx came in a little higher for the quarter than maybe I was expecting. Are you still expecting around a $60,000,000 burn for 2018 given that you already burned around $27,000,000 for the quarter? That's correct. As I explained in the script, Q1, we are still running 1st and second quarter, you can expect that we are still running the 3 Phase III clinical trials. And of course, those trials are consuming cash. As we said that we expect the top line results in Q3 and then RAS Asia will come at end of Q3 towards Q4, you can expect the cash burn to decrease. Yes, Rohit, to underscore that point, we're at a bit of to underscore the point, we're at a bit of a bolus in this Q1 because we're we just announced that the enrollment for the ACTI program just wrapped up. Obviously, we're looking at top line readout for that study in the Q3. We continue to recruit at a good pace for the rosacea program at some point in time. That will wrap up. So these are kind of right in the peak points. Once the ACI study is done, I mean, there's really no more work to be done on the clinical side because we've already completed the safety extension. I think for rosacea, as I've shared with the on the for the previous question, we're moving at a really good pace for that. So you could you clearly will be able to see that as we move towards the back end of the year, certainly the second half, R and D costs associated with running these clinical trials would decrease quite meaningfully. And so we remain on target for the burn rate for the year. And sorry, so then the cadence will be the spend in 2Q will be similar to 1Q and then a big drop in the second half twenty eighteen? You can expect the burn in the 2nd Q to go down some and continue the trend into Q3 and Q4. Great. And then the last question for me is, I just want to confirm that you will announce the last patient enrolled for the combined Phase 3 ROSATIA study, that's still the plan? Yes, that's confirmed. Okay, great. Thanks very much. Thanks, Rohit. Ladies and gentlemen, as there are no further questions at this point of time, I would like to turn the call back over to the management team for any additional or closing remarks. Thanks, operator, again for your assistance on the call today to Michael Wood at LifeSci and obviously to all attendees on this call. Again, our continued thanks to our shareholders for your support and we look forward to keeping you updated on the progress of our business over the course of the coming months and the next quarter or so. So thank you very much. Have a great rest of the week. Bye bye. That will conclude today's conference call. Thank you for your participation. You may now disconnect.