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Zogenix Inc (NASDAQ:ZGNX)
Q2 2019 Earnings Call
Aug 6, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Zogenix Second 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

This afternoon, Zogenix issued a news release announcing financial results and providing a business update for the three and six months ended June 30, 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, August 6, 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.

Stephen J. Farr -- Chief Executive Officer

Thank you, Brian. Good afternoon to everyone who is joining us on today's call. Since our last investor call we are very pleased to have made positive strides in advancing both our key FINTEPLA programs. First in reaching agreement with the FDA in regards to the NDA resubmission for Dravet syndrome. And second, in completing patient enrollments into our global Phase III study for Lennox Gastaut syndrome or LGS. These are two childhood-onset epilepsies that can present lifelong difficult to patients and their families. As a reminder, FINTEPLA is the brand name of our lead drug candidate ZX008 or fenfluramine.

As previously announced, following a constructive meeting with the FDA at the end of May, we now have a clear understanding and defined path forward for the resubmission of FINTEPLA NDA for the treatment of seizures associated with Dravet syndrome. With the FDAs concurrence, we are able to submit the NDA without the additional chronic toxicity studies specified in the agencies Refusal to File or RTF letter which we received in early April.

In addition, we have resolved an issue also noted in the RTF letter and have implemented a remediation and validation plan, agreed upon with the FDA for the resubmitted data sets. It's important to reinforce that the study results were determined using the correct date set and this unfortunate para was limited to uploading an incorrect clinical data set to the submission portal.

Working through these issues with the FDA highlighted the strong support by physician and caregiver communities for FINTEPLA as a potential future treatment option in Dravet syndrome and we are on track to resubmit the NDA in September.

In parallel to our US regulatory activities, I'm pleased to report that the European regulatory application for FINTEPLA for the treatment of seizures associated with Dravet syndrome remains under active review. We are currently assuming priority review for our forthcoming FINTEPLA NDA resubmission and correspondingly are preparing to launch FINTEPLA in the United States in the first half of 2020.

To ensure commercial readiness, we have a number of ongoing activities, such as interacting with clinicians on the Dravet community to increase our understanding of critical treatment and care needs, including the continued demand for new more efficacious and better tolerated treatment options for many patients. And also discussing the investigational FINTEPLA data generated to-date.

As part of these efforts, we are increasing our level of engagements with community stakeholders, physicians and advocacy groups through meetings, medical conferences and medical education programs. And during the remainder of 2019, Zogenix will have a significant presence at several upcoming US and European medical meetings, such as the European Paediatric Neurology Society in September, the Child Neurology Society

in October and the American Epilepsy Society in December.

We also recently launched a drug awareness campaign in United States, including a website [Indecipherable] designed to help clinicians understand the needs of both improved seizure control and better quality of life of patients and their families.

Turning to product manufacturing, during the second quarter we finalized commercial scale validation at our suppliers for both the drug substance and the finished drug product. We are also pleased to report distribution vis specialty pharmacy has been established and is already up and running in supplying drug to patients participating in our Expanded Access Program or EAP. We are encouraged by the strong interest and participation we have seen from the Dravet community in both our EAP and the ongoing open label extension studies.

In total, there are currently 380 Dravet patients being treated with FINTEPLA across these programs. More than 260 of these patients have now been on FINTEPLA for at least one year, which continues to show a favorable safety profile and no incidents of valvular heart disease.

I'd now like to move onto our work in Lennox-Gastaut syndrome or LGS. Another difficult to treat severe childhood onset epilepsy for which new and more effective treatments are urgently needed. As I mentioned earlier, we announced last month that we have completed enrollment for and randomized the last of 263 patients into the treatment period of Study 1601. As a reminder, this Phase III trial is an ongoing global double blind placebo-controlled 3 on trial in subjects between 2 and 35 years of age. We expect the top line safety and efficacy data in LGS from Study 1601 will be available in the first quarter of 2020.

In addition to our recent regulatory development and commercial preparedness activities, we're also pleased to report that our intellectual property position are strengthened through the recent notice of allowance for one US patent application and the issuance of two new US patents. We allow patent application covers the safe use of fenfluramine for epilepsy treatment and the two issued patents cover the proprietary synthetic process we use to manufacture fenfluramine. The granting of these patents will bring our issued US patent portfolio for FINTEPLA to seven, which in combination with our international patent portfolio and global marketing exclusivity protection after providing for pricing protection up to 2036 and potentially beyond.

Earlier this year, we discussed plans to initiate a randomized controlled study of FINTEPLA in Dravet syndrome. In response to input for members of the Advisory Boards. We are engaged to prepare for this study, we stress the urgent need for new treatments in several refractory childhood onset epilepsies and the potential for FINTEPLA to address this need, we have decided to start to initiate a Phase II open label exploratory study of FINTEPLA in several severe epilepsy syndromes, including Dravet syndrome. We expect this study to begin later this year and look forward to providing further information in the coming months.

In conclusion, we made good progress in multiple regulatory developments, medical affairs and commercial areas for both Dravet and the LGS programs and have strengthened our global proprietary or intellectual property position for FINTEPLA. Looking ahead to the remainder of the year, we are preparing the NDA for FINTEPLA in Dravet syndrome for resubmission in September. In addition, our MAA application in Dravet syndrome remains under review in Europe. We remain on track with our LGS program and anticipate top line results in the first quarter of next year. And moreover we are preparing to initiate a Phase II study of FINTEPLA in several severe childhood onset epilepsy conditions later in the year.

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

Michael P. Smith -- Chief Financial Officer

Thanks, Steve. And good afternoon, everyone. Today, we issued a press release summarizing our business and financial results for the quarter ended June 30, 2019, which I'll now summarize. We recognized $1.1 million in revenue in the second quarter of 2019. This is a result of our March 2019 strategic distribution partnership for Japan with Nippon Shinyaku. For which we received upfront payments in the second quarter of $15.5 million for development activities related to FINTEPLA for the treatment of Dravet syndrome and LGS.

Total operating expenses for the second quarter were $41.9 million. R&D expense totaling $27.1 million for the quarter was the main component of our operating expenses and we were predominantly driven by the ongoing global LGS Phase II program, a continued high level of participation of patients in our FINTEPLA open label extension studies and work related to our FINTEPLA NDA and MAA resubmissions.

SG&A expenses for the second quarter ended June 30, 2019, totaled $15.5 million, which reflects an 80% increase versus the second quarter of 2018. Our SG&A expense increase was driven by continued investment in preparations to prospectively launch FINTEPLA for treatment for Dravet syndrome in the US and in various countries in Europe in the coming years.

Net loss for the second quarter ended June 30, 2019 Was $37.8 million or $0.89 per share. This compares with a net loss of $29 million or $0.83 per share in the second quarter ended June 30, 2018. In the first half of 2019, net loss was $73 million or a net loss of $1.72 per share, compared with a net loss of $59.2 million or a net loss of $1.69 per share in the six months ended June 30 in the prior year.

We ended the second quarter with cash, cash equivalents and marketable securities totaling $463 million. With the continued strong balance sheet, we remain well positioned to execute on our strategic plan to bring FINTEPLA to market as a potential new treatment option for Dravet syndrome and LGS patients and their family and expand our pipeline through targeted business development, acquisition or licensing deals or rare disease therapeutic opportunity.

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 Difei Yang with Mizuho. Please go ahead.

Alex Allen -- Mizuho -- Analyst

Hey, good afternoon, guys. This is Alex Allen for Difei. Thank you for taking the question. I was wondering if you could comment a little bit on spending trends for the second half of 2019 and into 2020 with the launch of FINTEPLA. How should we think about your cash burn going forward in the coming six to 12 months?

Stephen J. Farr -- Chief Executive Officer

Hi, Alex. I'm going to hand that over to Mike, who will address it for you.

Michael P. Smith -- Chief Financial Officer

Yeah. Sure. Thanks, Steve. Yeah. So we would expect a similar cash operating expenses in the second half of the year as we have this year. They're slightly above where we were last year. R&D is relatively similar in the context of Dravet program, concluding that we do have a -- we have a normal ongoing open label extension study that contribute to the R&D line as well as the LGS program, and we'll be starting our third program that Steve mentioned on the call. That's going to investigate multiple other epileptic encephalopathies. And so, we'll continue to have similar R&D expenses for the second half of this year as we have for the first half. SG&A will go up slightly as we start to plan with respect to launching in the following year. And we haven't given any specific guidance on 2020 as yet. And so, I think, common sense says that there will be an increase over this year, but we're not guiding any specifics with respect to those costs.

Alex Allen -- Mizuho -- Analyst

Okay, great. And then, if I may, just a final question. I'm wondering if you could give us an update on the ZX008 combo studies with CBD. Should we still expect to see some data from these studies by the end of the year? Thank you.

Stephen J. Farr -- Chief Executive Officer

Yeah. Alex, as you know, we do have a study ongoing, it's an investigator-initiated study in a few centers in United States looking at the addition of ZX008 to patients who are taking various forms of CBD. These are investigator-initiated study, so really the publication of those data will be responsibility of the physicians. There is a possibility that, that data may be available later in the year, but we will sort of follow up with that, but you might better see something in this year, if not, it will be next -- early next year.

Operator

Our next question comes from Yatin Suneja with Guggenheim Partners. Please go ahead. Yatin, your line is live. Yatin? Okay. Let's move on to Tim Lugo with William Blair. Please go ahead.

Unidentified Participant

Hi. This is [Indecipherable] on to Tim. Thanks for taking the question. A couple come from us. Following up on the prior question, how are you thinking about your combination use with Epidyolex they just reported some significant sales growth, so that they are obviously getting good amount of use and I would like to hear your thought there. And then secondly, just have you -- given any thought to the size of this exploratory Phase II trial? Thanks.

Stephen J. Farr -- Chief Executive Officer

Yeah. It's Farr. It's difficult to share you precisely, but let me see if I can decipher it to my answer here. So we certainly expect that some of the use of FINTEPLA in the marketplace will be in combination with CBD. We also expect there to be patients who will be on our therapy and not on CBD. We have conducted the appropriate drug-drug interaction studies that will inform our future label in terms of how those products will be used together. Ashish, is there anything you want to say about commercial combination of those two?

Ashish Sagrolikar -- Chief Commercial Officer

At this point in time, it will be premature to say how physicians will use it, but I think what you have characterized makes absolute sense based on what we're hearing from the physicians. There is a need for multiple therapies and single-therapy is not suitable for every patient, so we will see as the plans get evolved.

Stephen J. Farr -- Chief Executive Officer

Thank you. And to respond to your second question. We haven't provided any information yet in terms of the size of that exploratory Phase II program. It's our intend to include several epilepsy syndromes into that study and, of course, have adequate number of patients in order to be able to provide meaningful data. So we will provide more information on that protocol as we go forward this year.

Unidentified Participant

Okay. Thank you.

Operator

Our next question comes from Tazeen Ahmad with Bank of America. Please go ahead.

Syeed Rahman -- Bank of America Merrill Lynch -- Analyst

Hi. This is Syeed Rahman on for Tazeen. Thanks for taking our question. My question is in regards to competitive development and Dravet and LGS. Can you comment on how you think FINTEPLA's mechanism and clinical data positions it within the competitive landscape. And specifically, how do you view the potential for gene therapy for Dravet treatment. While it's several years out, do you think mechanistically it makes sense to try this route?

Stephen J. Farr -- Chief Executive Officer

First, with respect to FINTEPLA, it does have its own unique mechanism of action in Dravet syndrome. It's a drug which has a different pharmacology to all the other antiepileptic drugs that are available today. And we are clearly -- I'm thrilled to have been able to generate what we see as efficacy data the could create a new standard of care for the treatment of Dravet syndrome. So from that perspective, we think we have a very valuable drug and the drug that we use widely by the Dravet syndrome community.

In terms of gene therapy, you're absolutely right, it's a long way off. It's an exciting opportunity we believe. We do think that treating half of insufficiency with a gene therapy makes sense and we will continue to monitor area as we move forward.

Syeed Rahman -- Bank of America Merrill Lynch -- Analyst

Okay. Thanks. And on your Phase III publication for Dravet, what new information could we look forward to there?

Stephen J. Farr -- Chief Executive Officer

You mean, our upcoming conferences or pre-reviewed publications?

Syeed Rahman -- Bank of America Merrill Lynch -- Analyst

Pre-reviewed publications.

Stephen J. Farr -- Chief Executive Officer

Yeah. We've got a number either in preparation on the pre-review right now, which are already associated with our pivotal trials that we conducted with Dravet program. So study 1, Study 1604 as well as open label extension study. So those will be forthcoming hopefully over the next six to 12 months.

Syeed Rahman -- Bank of America Merrill Lynch -- Analyst

Okay. Thank you.

Operator

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

Nirav Shelat -- Piper Jaffray -- Analyst

Hey, thanks for taking my question. This is Nirav on for Danielle Brill. I just had a couple. The first one was, with epidemics on the market and I think the -- it is going to be a pretty short interval between FINTEPLA launch in Dravet and its launch in LGS. So I was wondering how you were thinking about pricing?

Stephen J. Farr -- Chief Executive Officer

Ashish, would you like to address that question.

Ashish Sagrolikar -- Chief Commercial Officer

Definitely. In terms of the launch timing, I think it will depend on our submission and as the agencies approve. So it will be very mature to comment on that. And for pricing, it's too early to determine what the potential this price for FINTEPLA will be. We will be addressing potential considerations closer to be approval. However, as you know, it applies not in the next part of the general epilepsy, but what Dravet and we are looking at primarily the strength and durability of our seizure inducing outcome data. The small population -- the patient population Dravet where we will be launching first. And the Zogenix continued investment in this community. And most importantly, ability of patients and families to have access to the therapy. Once we have LGS data published and it is positive and then we receive approval. That's the time we will be visiting how we will be looking at the price across the indication.

Nirav Shelat -- Piper Jaffray -- Analyst

I see. Okay. Thank you. That's very helpful. The other question I had was, from your interactions with experts, if we were to get FINTEPLA in Phase III LGS trial to be similar to what Epidiolex has seen. What would you expect adoption to look like in competition with Epidiolex?

Stephen J. Farr -- Chief Executive Officer

I don't think it's fair for us to speculate what our Phase III data is going to be until we read our Phase III results. So maybe that's a question we can actually address when we have those data.

Nirav Shelat -- Piper Jaffray -- Analyst

Got it. Okay. Thank you so much.

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. I have two. First, you mentioned that there are 380 Dravet patients across the expanded access program in the Eli Lilly. Can you just break out what the numbers are for each of those? And then secondly, on the newly allowed patent for covering element to ensure safe use, can you speak to how that patent could tie directly to language, either in the product label or REMS program or both?

Stephen J. Farr -- Chief Executive Officer

Yeah. Thanks, Jason for your questions. With respect to the breakout of Dravet patients in expanded access versus open label extension. It's approximately 100 in expanded access and the remainder in open-label. I want to make the point here that, we have not -- we didn't start our AAP broadly. Deliberately, we started it in a small number of centers to get experience and confidence with the process. And now we're starting to expand the numbers of centers that can -- that can provide early access program. And that's really in demand, what we're actually seeing by families out there. So we do expect, as we move forward, share price, the product being approved, that the number of patients in the expanded access will increase.

Second question, I forgot it. So I appreciate, if you could just give me a quick reminder.

Jason Butler -- JMP Securities -- Analyst

Sure. Just on the newly allowed patent for elements to ensure safe house. Just how that might tie in directly to the language in the label or the REMS program?

Stephen J. Farr -- Chief Executive Officer

Very closely. Because it really does describe the distribution system that we'll been putting in place, that will be both reflected in the dosing administration and the label, as well as elements of the future REMS program.

Jason Butler -- JMP Securities -- Analyst

Great. Thanks for taking my question.

Stephen J. Farr -- Chief Executive Officer

Thank you.

Operator

[Operator Instructions] Our next question comes from David Sherman with LifeSci Capital. Please go ahead.

David Sherman -- LifeSci Capital -- Analyst

Hi, guys. Thanks for taking my question. I was just wondering with regards to the Phase II exploratory study that you're talking about. Do you envision standardizing background therapy? Or is there potential -- is there going to be a need to do dose adjustments, like you had done with stiripentol?

Stephen J. Farr -- Chief Executive Officer

Sorry, David. Could you just repeat that again for me to make sure I got absolutely right?

David Sherman -- LifeSci Capital -- Analyst

Sorry. I was just wondering with the exploratory study are you going to need to do any dose adjustments, like you had done with the stiripentol trial?

Stephen J. Farr -- Chief Executive Officer

Now we have that information. And clearly, that type of dose adjustment, if patients are taking drugs with a drug-drug interaction or no drug-drug interaction with us in FINTEPLA. Yes, that could -- that will be part of the protocol.

David Sherman -- LifeSci Capital -- Analyst

Okay. Got it. Thanks a lot.

Stephen J. Farr -- Chief Executive Officer

Thanks.

Operator

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

Yatin Suneja -- Guggenheim Partners -- Analyst

Hey, guys. Thank you for taking my question. And I apologized, earlier there was something wrong with my headset. Maybe two questions for me. First, could you maybe talk about your confidence in getting a priority review. Once you submit the file, what the timelines would be if you get the priority to review?

And then second, a little bit broader question. Could you maybe talk about how you're thinking about building the pipeline? Are there certain areas within the nearest psychiatry indications or disease area where you might be interested in and the type of asset or transaction that you could do? Thank you.

Stephen J. Farr -- Chief Executive Officer

Thank you, Yatin. Glad we were able to connect. With respect to priority review, I'm not going to dive into the specifics of our interaction with the FDA at the meeting, but we feel very confident that the NDA resubmission will qualify for priority review. And that's really -- we factor that into our planning as we go forward.

With respect to the pipeline, we are looking at a broad array of potential opportunities, but they all characterized by being in the rare disorder space. Some of them are clearly heavily focused in neurology. And even in the treatment of seizures. But there are other opportunities that are broader than that. So we are obviously looking intensely at a variety of -- a number of things. Right now, I would like to move a few of these closer to finish line tried to become -- cancel any of them until they have been signed, but we feel that there is a few uptick ahead of us that we would like to move to closure. So in terms of the -- whether that's in development stage, we would prefer things that are either preclinical or in the Phase II arena or coming up to Phase III. I think in that particular environment, we would be able to position of the asset. We will be able to do appropriate development to increase value as we move forward.

Yatin Suneja -- Guggenheim Partners -- Analyst

Got it. And then just one more quick question on the P&L side. Obviously, I saw an uptick on R&D and SG&A. Can you just maybe help us to model it going forward for the second half. Should we anticipate a further uptick in R&D? I understand you might be building the commercial, so SG&A might go up, but -- just help us understand how we can model that? Thank you.

Stephen J. Farr -- Chief Executive Officer

Yeah, I'll pass it over to Mike to address that question for you.

Michael P. Smith -- Chief Financial Officer

Yeah. Yatin, SG&A will go up modestly in the second half versus the first half, which getting close to launch. The R&D may increased slightly, not significant. That is reflective of an increasing amount of patients that are being continually treated with our -- it matches Dravet, but with FINTEPLA for Dravet and LGS. So we do have an ongoing LGS study and a Dravet study included. But most of the patients -- predominantly, most of the patients that ran through our Phase III programs are now enrolled in our open-label extension study. And so as patients are rolling into that study continuing and not dropping out and then we're having LGS patients continue as well into its open label extension study. We've got an increase versus where we were last year, which is getting a lot more patient exposures. And that will continue until we're commercial in terms of those patients being on treatment and we will transition them to commercially available drug once we're approved.

Yatin Suneja -- Guggenheim Partners -- Analyst

Great, thank you very much. I'm looking forward to the filing.

Operator

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

Rhonda Reece -- SVB Leerink -- Analyst

Hi. This is Rhonda Reece [Phonetic] on the line for Marc. Thanks for fitting me in. I just want to touch upon your distribution network. I think you mentioned it briefly in the prepared remarks. Could you give us any color around the number of locations and do -- did you build up any sort of buffer to meet our pent-up demand.

Stephen J. Farr -- Chief Executive Officer

Thanks for your question. I'm going to hand that over to Ashish to address it for you.

Ashish Sagrolikar -- Chief Commercial Officer

Yeah. Hi, Rhonda, this is Ashish. And from a distribution network perspective what we are looking at is our first indication to launch is going to be in Dravet syndrome. And given the monitoring that we will be needing to be doing for FINTEPLA, we are planning to have a limited distribution to a specialty pharmacy where we can not only ensure that we follow of the proper protocols, but also have the monitoring systems in placed so that it can be managed as we launch the product.

As far as your second concern in terms of the availability of the product. As we said in the prepared remark, we've been able do the validation for both our front drug as well as the final product earlier and those validation studies were very successful. We feel very confident that we'll be able to handle any demand that will come at the time of the launch.

Rhonda Reece -- SVB Leerink -- Analyst

Okay. Great. And just one quick follow-up. For your expanded access program, just thinking ahead, when do you expect those patients to convert to paid drug after potential launch of FINTEPLA?

Ashish Sagrolikar -- Chief Commercial Officer

Yeah. That's a good question. I think it's going to be very difficult to speculate exactly how much time it will take, and it will depend on individual patient insurance and their situation. And as you have seen in some of the parallel therapies, it has taken anywhere between six to nine months, depending on the condition of the patient and also place where they are in. So we will expect around the similar time frame, but our goal is to, at the time of the launch be prepared to help transition these patients from early access program to the commercial therapy -- commercial product.

Rhonda Reece -- SVB Leerink -- Analyst

Great. Thanks so much.

Operator

Thank you. I would like to turn the floor over to Steve for closing comments.

Stephen J. Farr -- Chief Executive Officer

Thank you, operator. We are focused on resubmitting our FINTEPLA in Dravet syndrome as we've just discussed. And obviously we actively preparing for an expected US commercial launch next year. We're also very excited about the expected availability of top line Phase III data from our FINTEPLA LGS program in the first quarter of 2020. So we look forward to providing you with further updates throughout the second half of this year.

With that, I thank you for joining us today. Enjoy the rest of your day. Goodbye.

Operator

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

Duration: 33 minutes

Call participants:

Brian Ritchie -- Investor Relations

Stephen J. Farr -- Chief Executive Officer

Michael P. Smith -- Chief Financial Officer

Ashish Sagrolikar -- Chief Commercial Officer

Alex Allen -- Mizuho -- Analyst

Unidentified Participant

Syeed Rahman -- Bank of America Merrill Lynch -- Analyst

Nirav Shelat -- Piper Jaffray -- Analyst

Jason Butler -- JMP Securities -- Analyst

David Sherman -- LifeSci Capital -- Analyst

Yatin Suneja -- Guggenheim Partners -- Analyst

Rhonda Reece -- SVB Leerink -- Analyst

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