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Zogenix Inc  (NASDAQ:ZGNX)
Q1 2019 Earnings Call
May. 08, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Zogenix Incorporated First Quarter 2019 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Brian Ritchie. Please go ahead.

Brian Ritchie -- Investor Relations

Thank you, operator, and thank you all for joining us this afternoon. With me on today's call are Chief Executive Officer, Dr. Stephen Farr; and Chief Financial Officer, Michael Smith. In addition, Dr. Gail Farfel, Chief Development Officer; and Ashish Sagrolikar, Chief Commercial Officer, will also be available during the Q&A session.

This afternoon, Zogenix issued a news release announcing financial results and providing a business update for the three months ended March 31st, 2019. Please note that certain information discussed on the call today is covered under the Safe Harbor provision of the Private Securities Litigation Reform Act. We caution listeners that during this call, Zogenix management will be making forward-looking statements.

Actual results could differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with the Company's business. These forward-looking statements are qualified by the cautionary statements contained in Zogenix's news releases and SEC filings, including in the annual report on Form 10-K and subsequent filings. This conference call also contains time-sensitive information that is accurate only as of the date of this live broadcast, May 8th, 2019. Zogenix undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call.

Now I'd like to turn the call over to Steve. Steve?

Stephen J. Farr -- President and Chief Executive Officer

Thank you, Brian, and good afternoon to everyone who is joining us on today's call. As you know early last month, we received a Refusal to File letter, or RTF, from the FDA regarding our NDA submitted in February for FINTEPLA for the treatment of seizures associated with Dravet syndrome.

As we noted in a separate conference call last month, the FDA provided two reasons for the RTF letter. First, certain non-clinical studies were not submitted to assess toxicity following the chronic administration of fenfluramine. As we said at the time we announced the receipt of the RTF letter, we did not believe these studies were required for the NDA submission based on our assessment of prior verbal and written interactions with the agency.

Second, our submitted NDA application contained an incorrect version of a clinical data set which prevented the completion of the review process that is necessary to support the filing of the NDA. This error does not impact the clinical study results reported in the NDA and will be appropriately rectified for the NDA resubmission. We remain highly confident about the clinical profile of FINTEPLA established in the contingent Phase III program.

I would like to emphasize that in the RTF letter, the FDA did not request additional clinical studies or raise concerns about the safety of FINTEPLA observed in our Dravet clinical program. The RTF letter has no impact on the continuation of our long-term open-label extension study, Dravet syndrome, or for Study 1601, our ongoing Phase III trial in Lennox-Gastaut syndrome or LGS. Collectively, these studies now involve the participation of more than 500 patients.

We recently requested a Type A meeting with the FDA to allow us to reach an agreement on the pathway for resubmission and acceptance of the NDA. We will expect that this meeting will take place by early June. And per guidelines, the official written minutes from the meeting should be available within 30 days thereafter.

In advance of this Type A meeting, we submitted briefing materials through the FDA outlining our position that a requirement for additional chronic toxicity studies is inconsistent with prior agency feedback on written minutes -- meeting minutes. Further, we reviewed that these nonclinical studies are unlikely to identify important new safety information considering the large volume of clinical data available for FINTEPLA from our Phase III program and the substantial published literature on the clinical use of fenfluramine. We anticipate that the discussions and outcomes from the Type A meeting will help frame the expected timelines for our resubmission of the NDA to the FDA.

As we continue to work with the FDA, patients enrolled in our Dravet syndrome and LGS clinical trials will continue to receive the ZX008 or FINTEPLA. In addition, our Dravet syndrome Expanded Access program will continue as planned and accept new patients for evaluations participating in this program.

In Europe, our Marketing Authorization Application or MAA for FINTEPLA for the treatment of seizures associated with Dravet syndrome was accepted for review by the European Medicines Agency or EMA, and that occurred in the first quarter. We now expect to receive the first set of review questions surrounding the submission from the EMA this year.

I'd like now to move on to our work in Lennox-Gastaut syndrome or LGS, another difficult to treat severe childhood onset epilepsy for which new and more effective treatments are greatly needed. As a reminder, our Phase III trial, Study 1601, is an ongoing global double-blind, placebo-controlled, 3-arm trial in subjects between 2 and 35 years of age. We have seen very impressive patient enrollment at the newly initiated European sites during the first part of 2019. I am pleased to report that we are on track to complete full study enrollment for Study 1601 in the second half of 2019. In line with this, we continue to anticipate the top line data from Study 1601 will be available in the first quarter of 2020.

Beyond the progression of our global development program for FINTEPLA, I would like to take a moment to highlight the key strategic partnership we entered into in March with a leading Japanese pharmaceutical company, Nippon Shinyaku, to support the commercialization of FINTEPLA in Japan. Nippon Shinyaku is an ideal partner for FINTEPLA given its established expertise and commitment to rare diseases and its successful track record in collaborating with US pharmaceutical companies around highly differentiated therapies to target patient and physician communities in Japan. Under the terms of our partnership agreement, Nippon Shinyaku received exclusive distribution rights to FINTEPLA in Japan. In exchange, Zogenix will receive near-term payments totaling $20 million, a major portion of which was due at signing and the remainder of which will be paid over the next two years.

Zogenix will also be eligible to receive further regulatory and sales based milestone payments worth up to an additional $108.5 million. In addition, Zogenix will supply product to Nippon Shinyaku and receive a tiered price for providing product of up to a high double-digit percentage of annual net sales of FINTEPLA in Japan. We are excited to have established this key partnership and look forward to working with Nippon Shinyaku and the appropriate healthcare authorities in Japan to bring FINTEPLA to physicians, patients and their families there as soon as possible.

Looking ahead to the remainder of the year, we are now preparing for our upcoming Type A meeting with the FDA. I want to reiterate that we remain fully committed to advancing FINTEPLA on the potential new treatment option for Dravet syndrome patients and their families. And so we're working with the FDA to address the open issues and to identify a path that enables us to successfully resubmit our NDA as quickly as possible. I look forward to updating you further following the Type A meeting with new developments.

Beyond Dravet syndrome, we remain on track with our LGS program and anticipate the completion of enrollment in Study 1601 during the second half of 2019 with top line results expected in the first quarter of next year.

With that, I will turn the call over to Mike for his review of the financials. Mike?

Michael P. Smith -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Thanks, Steve. I will begin by reviewing our three month financials for the quarter end March 31, 2019, as compared to corresponding period in 2018. Research and development expenses for the first quarter totaled $24.4 million, up slightly from $23 million in the first quarter in 2018. R&D expenses are substantially driven by our ongoing global Phase III development program of FINTEPLA and LGS and cost related to our ongoing open-label extension trial for our Dravet syndrome program that has been highly enrolled and experienced a high level of retention.

Conversely, clinical trial activities and associated cost related to our Phase III development program of FINTEPLA in Dravet syndrome, Study 1 and Study 1504, closed in 2018, and payments are winding down during this past quarter.

SG&A expenses for the first quarter ended March 31st, 2019, totaled $10.9 million and this compares with $8.1 million in the first quarter of the prior year. The increase in SG&A costs reflects our continued investment and preparation to potentially launch FINTEPLA as a treatment for Dravet syndrome in the US and various countries in Europe in the coming years.

We reported a net loss for the first quarter ended March 31 of $35.2 million or $0.83 per share, and this compares to a net loss of $30.2 million or $0.87 per share in the prior year period. We ended the first quarter with cash and cash equivalents and marketable securities totaling $480.7 million as compared to $514.2 million at the end of 2018. With this continued strong balance sheet, we remain well-positioned to execute on our strategic plan in bringing FINTEPLA to market as a potential to treatment option for Dravet syndrome and LGS patients and their families around the globe.

We remain focused on advancing our commercial plan for FINTEPLA as a treatment option procedure associated with Dravet syndrome and look forward for our coming Type A meeting with the FDA. Simultaneously, we are nearing the end of our enrollment period for Study 1601 for patients in our global Phase III program for FINTEPLA in LGS and look forward to completing that enrollment in the second half of this year and potentially reading out the study in Q1 of 2020.

I'll now turn the call over to the operator to begin the Q&A session. Operator, could you please provide the instructions?

Questions and Answers:

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Our first question comes from Paul Matteis with Stifel. Please go ahead.

Nate Tower -- Stifel, Nicolaus & Company -- Analyst

Hi. Thanks for taking the question. This is Nate on for Paul. I guess just very first, have you definitively ruled out using the old preclinical data? And then in case you have, have you gone under way with the preclinical studies in case you can't use them?

Stephen J. Farr -- President and Chief Executive Officer

Thanks, Nate. This is Steve. No, we have not ruled out the potential for referencing the old clinical toxicology -- the chronic toxicology studies for fenfluramine. And in addressing your second question, yes, we have started preparations for repeating those studies if necessary.

Nate Tower -- Stifel, Nicolaus & Company -- Analyst

Got it. And then just one on the models themselves. Do these models that the FDA is asking for, do they actually elucidate drug-induced valvulopathy symptoms?

Stephen J. Farr -- President and Chief Executive Officer

You mean the chronic toxicology studies they requested?

Nate Tower -- Stifel, Nicolaus & Company -- Analyst

Right. Yes. Are they good for basically seeing these valve changes?

Stephen J. Farr -- President and Chief Executive Officer

Yes. It definitely quite consistent with what we did in the chronic toxicity studies we have conducted for samples (inaudible) toxicity, as well as the cost that we are doing -- cost initiatives tests (ph) was doing in the post-market required study. We will look at heart valves as part of those studies, yeah.

Nate Tower -- Stifel, Nicolaus & Company -- Analyst

Got it. All right. Thanks. Thanks for answering the questions.

Operator

Our next question comes from Marc Goodman with SVB Leerink. Please go ahead.

Marc Goodman -- SVB Leerink -- Analyst

Yes, hi. Two things. One, I was curious if you could give us your feedback on what you're hearing out there in the community from the GW Epidiolex launch so far. And second, can you just remind us of what the play is in Europe, the strategy for building out commercialization infrastructure and how we should think about that spending roll out this year and next year? Thanks.

Stephen J. Farr -- President and Chief Executive Officer

Thanks, Marc. I'll ask Ashish to address that question -- all those questions for you.

Ashish Sagrolikar -- Executive Vice President and Chief Commercial Officer

Thanks, Steve. For your first question, I think we have had a very short time to assess the Epidiolex first quarter sales information. But the impression is that the physician and caregiver interest is very solid, and that actually is a good thing because there is a huge unmet need. And then we believe that both community and the physicians are looking forward to having not only the current therapy but also the new therapies in the market.

In terms of Europe, our plan stays the same in terms of once approved, we will be looking to launch in a sequential fashion based on how we will get -- how we will apply for the reimbursement. And our intention as we mentioned earlier is, we will start with Germany first and we will be adding countries as we file for reimbursement. One important thing to note is, we have already started work and have a team in place in Europe to work in all the major countries for the reimbursement submission and negotiation, and a lot of modeling work and the initial meetings have already started. So we feel very confident that when approved, we will be ready to launch in those countries.

Marc Goodman -- SVB Leerink -- Analyst

Can you give us a sense of the number of people you're talking about? How many you have over there today? How many you'll have in six months and 12 months?

Ashish Sagrolikar -- Executive Vice President and Chief Commercial Officer

At this point in time, we have eight people on the ground, and most of them as you can imagine are in the reimbursement and the access function along with marketing and the launch preparedness. And once approved, we will be hiring people in major countries where we will be -- the footprint will be similar to what you will see in rare diseases, a equal portion of both medical as well as commercial. And based on the number of physicians and the patients, what we are looking at is anywhere between six to eight people in countries depending on the population and the scope. I hope that helps.

Marc Goodman -- SVB Leerink -- Analyst

Thanks.

Stephen J. Farr -- President and Chief Executive Officer

Thank you, Marc.

Operator

Our next question comes from Danielle Brill with Piper Jaffray. Please go ahead.

Nirav Shelat -- Piper Jaffray -- Analyst

Hi everyone. This is Nirav on for Danielle Brill. I just had a couple of questions. The first question I was wondering was even though the Type A meeting hasn't occurred yet, have you utilized your breakthroughs designation to have initial conversations on the issue so far?

Stephen J. Farr -- President and Chief Executive Officer

No. We have not. The reason for that is that the Type A meeting process takes care appropriately over the next steps as we expect the people to file a letter. It is the most important meeting we can have with the FDA that occurs in very short time frame. So we look forward to have that meeting very soon.

Nirav Shelat -- Piper Jaffray -- Analyst

I see. And how are you looking at the launch of EU versus US with this RTF letter backdrop? Do you see it launching at the same time in both?

Stephen J. Farr -- President and Chief Executive Officer

It really depends right now on the outcomes from our Type A meetings, so it's too early to sort of speculate on that. And obviously, we'll have more clarity once we have the plan and the timeline for the NDA resubmission.

Nirav Shelat -- Piper Jaffray -- Analyst

I see. Great. And I guess my final question would be if these ICH (ph) studies were to -- if they weren't needed, would you still be -- would you still consider filing the LGS data along with the refiling of the NDA just because of the delay in the time line?

Stephen J. Farr -- President and Chief Executive Officer

No. We would not. If the chronic toxicity studies are not required for resubmission, we believe we can move that forward very quickly following the Type A meeting, which will be at the time where we're still finalizing the enrollment of the LGS trial. So we would certainly move forward with an NDA for Dravet syndrome first.

Nirav Shelat -- Piper Jaffray -- Analyst

I see. Thank you very much. I really appreciate you taking my questions.

Stephen J. Farr -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Jason Butler with JMP Securities. Please go ahead.

Jason Butler -- JMP Securities -- Analyst

Hi. Thanks for taking the questions. Just two. First of all, have you had any interaction with EMA since the RTF to confirm their position on the historical toxicology data or do you have to wait for the 120 day questions? And then obviously, assuming you -- there's not a lot -- can you say -- can you give us any color on what your arguments are in the briefing packet you submitted as to why you think the historical data are the right way to go? Thanks.

Stephen J. Farr -- President and Chief Executive Officer

Thanks, Jason. I'll ask Gail to address the questions for you.

Gail M. Farfel -- Executive Vice President and Chief Development Officer

Sure. Hi, Jason. The EMA validated our package, which is the gateway to reviewing the package and in preparation for the questions that come at day 120. So that validation, in effect, was agreement that the data that they were given were sufficient to start the review. Regarding our contents of the briefing package, we -- I think Steve mentioned in his comments our position that the studies were not needed based on our interpretation and review of back and forth that we have had with the agency since 2015, and that's really all that we can say at this time. We'll have more understanding after the Type A meeting.

Jason Butler -- JMP Securities -- Analyst

Okay great. Thanks for taking the questions.

Stephen J. Farr -- President and Chief Executive Officer

Thanks, Jason.

Operator

(Operator Instructions) Our next question comes from the Difei Yang with Mizuho Securities. Please go ahead.

Difei Yang -- Mizuho Securities -- Analyst

Hi. Good afternoon and thanks for taking my question. Just a couple quick ones. So before the Type A meeting, do you plan to rectify the clinical file in adequacy, because that sounded like an easy fix. And then secondarily, and the worst case scenario is the preclinical toxicology study needs to be done. In that scenario, there will be a delay. And could you comment on the cash runway in that situation?

Stephen J. Farr -- President and Chief Executive Officer

Thanks, Difei. Regarding the second question around the preclinical -- the potential delay if we have to conduct those studies, as we said, I think, on our conference call around this subject a month or so ago, was around 12 to 15 months. We don't have any concerns around our cash burn and our cash position. We have more than adequate cash to account for this delay and still successfully launch FINTEPLA.

And could you repeat your first question for me, please?

Difei Yang -- Mizuho Securities -- Analyst

Yeah, the first question is that was there -- in the Refuse to File letter, there are two inadequacies, one of which is related to the clinical file not being correct. That sounded like the easy issue to correct. But do you plan to correct that before the Type A meeting or wait?

Stephen J. Farr -- President and Chief Executive Officer

It's really ongoing right now. So honestly, once you see an error like that, it's appropriate you do a root cause analysis, and then ensure you have corrective actions in place to make sure it doesn't happen again. And that -- all of that work is ongoing with our COO right now.

Difei Yang -- Mizuho Securities -- Analyst

Thank you for taking my questions.

Stephen J. Farr -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Yatin Suneja with Guggenheim Partners. Please go ahead.

Yatin Suneja -- Guggenheim Partners -- Analyst

Hey guys. Thanks for taking my question. Just a couple of questions. In terms of the communication to us, would you wait for the minutes or would you sort of communicate to us right after the meeting some time in June?

Stephen J. Farr -- President and Chief Executive Officer

Our normal practice is to wait until the official FDA meeting minutes, which we anticipate will be end of June, beginning of July.

Yatin Suneja -- Guggenheim Partners -- Analyst

Got it. And then you mentioned that you have not ruled out referencing the chronic tox data. So where are these data? Are they with the FDA or do you have access to them and didn't you reference everything in the filing already, every preclinical data that was out there?

Gail M. Farfel -- Executive Vice President and Chief Development Officer

Hi. This is Gail. Because the -- when the drug is on the market previously and were pulled from the market, the NDA is no longer active. So the process for referencing anything in a non-active NDA is not the same. We're not entitled to reference it. And if -- and we could if the NDA was still active. And that's why we are pursuing all options to be able to provide the data that the agency has requested.

Yatin Suneja -- Guggenheim Partners -- Analyst

Got it. And then these data that you might use, are they available in the six or nine month format that you -- will you be able to sort of make them fit the way FDA want?

Stephen J. Farr -- President and Chief Executive Officer

The published data does exceed six or nine months for both rat and dog species.

Yatin Suneja -- Guggenheim Partners -- Analyst

Got it. And then maybe a question for Mike on the P&L side. Can you maybe help us understand how we should model the expenses? Any change given the timelines now in the G&A or the R&D, one should go up or down? Can you just help us model that, please?

Michael P. Smith -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Yes. Sure. Well, for the coming year, I can give you kind of the impact of the change of this given the uncertainty regarding what the horizon may be for our shift, I think that's probably the most appropriate period. We'll continue to have R&D expenses that are similar to Q1 for the balance of the year. We have robust retention in our open-label extension studies, and there are patients swelling in from -- or into those studies for both the LGS, and so remaining Dravet program. And so we will continue to have costs there. They won't increase most likely. SG&A will be similar maybe for another month or so from last year a little bit as we prepare, but then that will start to ramp toward the second half of this year.

Yatin Suneja -- Guggenheim Partners -- Analyst

Great. Thank you so much.

Stephen J. Farr -- President and Chief Executive Officer

You're welcome.

Operator

We have a follow-up question from Paul Matteis with Stifel. Please go ahead.

Nate Tower -- Stifel, Nicolaus & Company -- Analyst

Hi. Thanks for the follow-up. This is Nate again. I just wanted to elaborate real quick in my last question. So I understand you'll be monitoring for valve changes in the chronic tox studies. But we had done some reading, and I think it had suggested that the valve changes seen in humans in -- with fenfluramine just in the past aren't necessarily recapitulated in some of these animal models. And I just want to understand if you agree with that stance or no?

Stephen J. Farr -- President and Chief Executive Officer

We agree, which is why we did a comprehensive prospective cardiac module program in our Phase III program, which we think is the right place to do those studies.

Nate Tower -- Stifel, Nicolaus & Company -- Analyst

Excellent. Thank you very much.

Stephen J. Farr -- President and Chief Executive Officer

Thank you.

Operator

We have a follow-up from Difei Yang with Mizuho Securities. Please go ahead.

Difei Yang -- Mizuho Securities -- Analyst

Thanks. So very quickly, with regards to this preclinical toxicology study or the data, is this available in the public domain or does it require you to negotiate with a third-party to access that data?

Stephen J. Farr -- President and Chief Executive Officer

The data aren't published in the peer review which is the fact. Obviously, the full study reports are not in the literature, but the findings for all the chronic toxicity studies are in the literature.

Difei Yang -- Mizuho Securities -- Analyst

Okay. So does that mean you can just reference to the literature and that will be good enough or do you think the FDA, historically, they wanted the data to be in certain ways?

Stephen J. Farr -- President and Chief Executive Officer

We would obviously prefer to reference the literature data and to show the totality of evidence with respect to the safety of fenfluramine that we have also established in our Phase III program. And as you might imagine, that will be a key area of discussion at the Type A meeting. So we will know more after the meeting.

Difei Yang -- Mizuho Securities -- Analyst

Yeah, thanks Steve.

Stephen J. Farr -- President and Chief Executive Officer

Thank you, Yang.

Operator

I would now like to turn the floor over to Dr. Farr for closing comments.

Stephen J. Farr -- President and Chief Executive Officer

Well, thank you, operator. We look forward to providing all of you with a further update, as appropriate, following our Type A meeting with the FDA. We remain very excited by the significant potential in our late stage FINTEPLA development program that is focused on multiple high value indications. Moreover, our business is supported by a strong balance sheet that allows us to be optimistic of business development for us. So with that, I thank you for joining us today. Enjoy the rest of your day. Bye, bye.

Operator

This concludes today's conference. Thank you for your participation.

Duration: 30 minutes

Call participants:

Brian Ritchie -- Investor Relations

Stephen J. Farr -- President and Chief Executive Officer

Michael P. Smith -- Executive Vice President, Chief Financial Officer, Treasurer and Secretary

Nate Tower -- Stifel, Nicolaus & Company -- Analyst

Marc Goodman -- SVB Leerink -- Analyst

Ashish Sagrolikar -- Executive Vice President and Chief Commercial Officer

Nirav Shelat -- Piper Jaffray -- Analyst

Jason Butler -- JMP Securities -- Analyst

Gail M. Farfel -- Executive Vice President and Chief Development Officer

Difei Yang -- Mizuho Securities -- Analyst

Yatin Suneja -- Guggenheim Partners -- Analyst

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