DURECT Corp (DRRX) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 and Full Year 2015 Flex Pharma Earnings conference call. (Operator Instructions)

Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, today's conference is being recorded.

I'd now like to introduce your host for today's conference, Elizabeth Woo, Senior Vice President Investor Relations and Corporate Communications. Ma'am, please go ahead.

Thank you, Liz. Good morning. Thank you for joining us to discuss Flex Pharma's fourth quarter and year-end financial results as well as our recent progress and outlook.

Earlier today, we issued a press release announcing recent business highlights and detailing our fourth quarter and year-end 2015 results. You can find these documents on our website at flexpharma.com.

Today, we will be making certain forward-looking statements about future expectations, plans, events and circumstances, including statements about our strategy, future operations and the development of our consumer and drug product candidates, plans for future potential product candidates and studies and our expectations regarding our capital allocation and cash resources. These statements are based on our current expectations, and you should not place undue reliance on these statements.

Actual results may differ materially due to our risks and uncertainties, including those detailed in the risk factor section of our 10-K filed with the SEC and other filings we make with the SEC from time to time.

Flex Pharma disclaims any obligation to update information contained in these forward-looking statements, whether as a result of new information, future events or otherwise.

We'll provide a brief overview then open it up for Q&A.

And joining us on the call today we'll start with Dr. Christoph Westphal, Chairman and CEO of Flex Pharma and Dr. Tom Wessel, Chief Medical Officer, followed by Marina Hahn, President of Consumer.

And now, I'll pass the call to Flex Pharma CEO, Christoph Westphal.

Thanks, Elizabeth. Thank you for joining us today. At Flex Pharma we are excited to be confirming the role of Chemical Neuro Stimulation, the process by which a small molecule chemical signal acting topically is translated into an electrical signal for the benefit of patients. This novel and important discover by [Nobelist] Dr. Rod MacKinnon and by Dr. Bruce Bean may be a generally applicable approach to treating disorders of cramping and spasms stemming from alpha motor neuron hyper-excitability.

With this platform we are developing solutions for patients and consumers in need, from the healthiest of humans, the endurance athlete to the millions who suffer regularly from nocturnal leg cramps to patients affected by severe neuromuscular conditions such as multiple sclerosis, motor neuron diseases such as amyotrophic lateral sclerosis and other serious diseases.

In 2015, we achieved our key goals, advancing both the clinical and consumer arms of the business. Our recent clinical results demonstrated statistically significant human efficacy in nocturnal leg cramps. We are poised to study a single small molecule, a selective specific transient receptor potential, or TRP, ion channel agonist in nocturnal leg cramps, multiple sclerosis and amyotrophic lateral sclerosis this year.

Recall that we nominated our lead clinical drug candidate outside the U.S., FLX-787, in Q4 2015. To date, we have generated a robust data set with over 200 human subjects tested for safety or efficacy.

Our chief medical officer, Dr. Tom Wessel, will discuss our clinical plans next. Additionally, we expect to begin commercializing our consumer product in the second quarter with a limited launch in three markets -- Boston, Boulder and L.A.

Our Beta for Alphas sampling program for endurance athletes, Olympians and pro teams, continues to gain momentum, particularly given the impact of recent stories published in several of the most influential endurance publications such as Outside, Competitor, Running Times, Triathlete and Bicycling.

Marina Hahn, who has built a team with an excellent track record will provide an update on the launch plans in her comments.

We continue to strengthen our board and management team by attracting top talent from both biotech and consumer arenas. Yesterday, we announced that Michelle Stacy, former President of Keurig and former Vice President and General Manager with Gillette P&G, has joined our board. Ms. Stacy brings a wealth of experience leading consumer businesses and building global trends.

A modest cash burn of $5.5 million in Q4 and over $93 million in cash and investments at year-end, Flex is well-funded through the middle of 2018 to execute upon our value-creating objectives.

I will now hand the call to Tom who will update you on our clinical progress.

Thanks, Christoph. As Christoph noted, the past 12 months have been very productive on the clinical front. I'm proud that the R&D team has hit our key development goals, particularly the nomination of our lead drug candidate and the statistically significant efficacy results in the individuals with nocturnal leg cramps, which exceeded our internal expectations.

These achievements position Flex Pharma to move rapidly to later stage human efficacy studies in nocturnal leg cramps, MS and ALS.

In addition, we have established a second muscle cramp model with collaborators at an independent academic laboratory. This new model is a volitional cramp model in athletes and compliments our electrically-induced cramp model that has been so useful for our company to optimize a consumer product and for pharmaceutical candidate selection.

Recall that less than a year ago, we initiated the nocturnal leg cramp study with the original proprietary extract formulation. At that time, we had not identified our drug candidate. After conducting a decomposition analysis of the extract formulation and chemically synthesizing the most potential TRPA1 and V1 agonists, we utilized our electrically-induced model in normal, healthy volunteers and studied various combinations of GMP synthesized TRPA1 and V1 agonists as synergistic compound pairs, but also as single molecules.

We were able to demonstrate enhanced efficacy by significantly reducing cramp intensity with GMP synthesized single agents compared to the original proprietary extract formulation. We showed that two individual TRP channel activators were superior not only to vehicle but also statistically significantly more effective than our prototype extract mixture.

On this basis, we selected the single agent, FLX-787, to take forward as our lead drug candidate outside the United States. This achievement was followed by a plan to study the single agent. And we are now preparing the necessary information for an IND application in the United States.

In early February, we announced that the extract formulation demonstrated statistically significant efficacy results across multiple endpoints in treating subjects with NLC that we believe are clinically meaningful.

This randomized crossover study evaluated 50 healthy subjects, 50 to 77 years of age, who experienced nocturnal leg cramps at least four nights a week. In this randomized, controlled, blinded crossover study statistically significant effects were demonstrated on several important endpoints. Muscle cramp frequency, cramp-free nights, the physician-rated clinical global impression of change and specific cramp pain and sleep disturbance measures.

The data are remarkably consistent and robust with all the key measures going in the same direction. These results exceeded our expectations. Additionally, our product appeared to be safe and well-tolerated, and there were no serious adverse events reported.

We believe that these consistent improvements on multiple endpoints are clinically meaningful and compare in magnitude to the effectiveness of Quinine. As you know, this drug has been removed from the U.S. market but is still widely used in Europe and elsewhere. In the U.K. where Quinine is still prescribed, 4.5 million prescriptions were written in 2013 for a population a fifth of the size of the United States.

Since we intend to present more detailed results at a future medical conference, as we have done throughout 2015, starting with the AAN Platform Presentation in April, followed by ACTRIMS then the Society for Neuroscience as well as the [LS NMD] meeting in Florida, we are now limiting the details that we will provide until we present these data at a scientific conference.

By one estimate, NLC affects 4 million Americans nightly. There is no approved therapeutic agent in the United States to treat this condition. No other treatments besides Quinine have been shown to be effective for nocturnal leg cramps in a randomized, blinded, controlled clinical studies. And to our knowledge, there are no other pharmaceutical agents in clinical development for nocturnal leg cramps here.

With the recent, positive development in NLC, my team has been doing a great deal of analysis regarding ways we can accelerate the development timeline for NLC. We are working through the key elements of the next study, including study design, product dose and formulation alternatives, defining the optimal dose in the optimal formulation is essential. And the faster we arrive at the final test article for clinical development, the closer we get to the eventual commercial product configuration. We expect to update you on this issue in the near future.

The study design for the MS and the ALS studies outside of the United States utilizing FLX-787 will be similar to the recent NLC study. That's to say randomized, controlled, blinded crossover design. These studies are expected to initiate mid-year.

Flex Pharma is expeditiously advancing the clinical development in nocturnal leg cramps, and the statistically significant human efficacy data generated in this study holds promise for a new treatment in the future for millions of individuals who currently have no safe and effective therapeutic options. These recent results certainly encourage us to look beyond exercise-associated cramps and nocturnal leg cramps to spasms and spasticity in MS and other neurological diseases because we believe that there are certain common underlying mechanisms at play.

With our ongoing and future clinical development programs, we expect to define the impact of this novel therapeutic approach to control neuronal hyper-excitability and prevent muscle cramps and spasms in different clinical settings.

I'll now hand the call to Marina to discuss the progress of our consumer efforts.

Thanks, Tom. Good morning, everyone. Over the past year, we have made great strides in the development of our consumer brand, and all our plans are coming together to be ready for a limited launch in Boston, Boulder and L.A. in the second quarter.

As our talented team works to develop and bring to market a proprietary formulation for consumers based on Dr. MacKinnon's breakthrough scientific insight, we have been seeding the version of the product with athletes, establishing credibility with the endurance sports community, building demand with our target consumers and gaining valuable insight on how they use the product and how well it is working for them.

The goal of Flex Pharma's efforts is to take athletes beyond the traditional mindset that exercise-associated muscle cramps are caused by a problem with the muscle.

Drawing on his Nobel Prize winning research, Dr. MacKinnon designed a sports beverage to stimulate sensory fibers and calm the motor nerves from becoming hyper-excited, greatly reducing the risk of cramping.

This novel mechanism of chemical neuro stimulation is allowing us to define a new category in nutrition, neuromuscular performance. We have been educating consumers about neuromuscular performance, which is how an athlete's nerves and muscle work together in an optimal way in explaining how our product boosts their neuromuscular performance to stop muscle cramps so they can push harder, train longer and finish stronger.

As we look to build this brand, we have chosen to apply a cult brand approach. As a reminder, a cult brand is built first with a small core group of devoted consumers within a particular passionate community who, in turn, become voluntary strong brand advocates. Only once the core has been nurtured does a cult brand expand to a wider, more mainstream audience.

While this approach has a slow and controlled start that requires patients, when well-executed, you often see hockey stick growth. And cult brands can demand a significant premium. This approach is a proven one having been the strategy behind a wide array of incredibly powerful, successful consumer brands such as Red Bull, Crisp Bar Energy Bars and SVEDKA vodka.

We have set a high bar for our launch, and we have made enormous progress in preparing for it. In the past year, we have accomplished a great deal. I have assembled a best-in-class team of senior level specialists in product R&D, supply chain and distribution, brand marketing, field marketing, social media with successful track records at places like SVEDKA, Pepsi, Gatorade, Sports Illustrated, Red Bull, Vita Coco, [Biagio] and Flywheel.

We have crafted a powerful brand name, visual identity, packaging and launch plan. We have developed a product balanced for efficacy and palatability. We have finalized our product and acquired certification. The beverage is low calorie, natural and recently certified 100 percent organic, which is very important to athletes.

We also have the other key certifications, NSF certified for sport, which tests for 200 prohibited and banned substances and allows professional athletes to take the product. Also non-GMO, gluten-free and Kosher certifications.

We have also validated product stability and specifications. We have prepared for a commercial production ramp-up. We have constructed a flexible supply chain and we are finalizing contracts. We have developed relationships with thought leader specialty retailers. We explored price elasticity and expect to price the product at a premium price level.

We are leveraging a slate of athletic spokespeople and we have signed a leading endurance athlete, Crowie Alexander, a well-known Triathlete, who's an IRONMAN record holder. We've also signed Olympians such as marathoner, Shalane Flanagan, who recently qualified for the Rio Olympics. And we have seeded the product with pro teams including the Denver Broncos, who received 100 bottles for the Super Bowl.

We have deployed a successful pre-launch marketing campaign to support our code name product, It's the Nerve at itsthenerve.com.

Our cult marketing plan is efficient utilizing digital and print media to drive awareness and trial among endurance athletes.

The pre-launch digital social media campaign educates early adopters and did so successfully, and resulted in some of the most influential endurance sports publications showcasing the science behind our discovery.

Our scientific breakthrough was featured in the November print issue of Outside Magazine, the leading publisher for active lifestyle enthusiasts. Articles have also been published in Competitor, Runner's World, Bicycling and Running Times, among others.

We retain 30,000 subscribers and we are still getting 300 to 400 emails a week from people sharing their cramp stories in need of a solution.

We recently initiated our pre-launch sampling program called Beta for Alphas which is receiving strong interest. Alpha athletes are asking for more product and referring their friends to the program.

As far as marketing and publicity, we continue to take a strategic approach using a community-centric approach, word of mouth, digital media, social media and public relations activities. We are spending the time to educate and cultivate key influencers, people whom this audience trust deeply. We will be out in the field engaging one-on-one. And we will be amplifying the opportunity for word of mouth messaging through the power of social media.

We are also focusing our energies on three markets -- Boulder, the capital of the endurance athlete world; L.A., a trend-setting endurance market with the power to amplify our message; and Boston, the home to the genius jock. In these markets, we are focused on specialty retail, meaning bike shops or running stores, places where these athletes shop versus the masses.

In addition, we are creating a digital overlay that lets us hyper target our core audience, driving them to ecommerce where we are integrating an ecommerce platform, which is where athletes are also shopping today for specialized products.

Over the next couple of months, we are focused on executing a specialty retail sales strategy and a marketing PR launch campaign.

Our remaining tasks are clear and manageable. And with the extraordinary amount of preparation over the past year, we are confident in our limited launch of this new category in sports nutrition in late second quarter.

I look forward to sharing more of our progress for you on our May call pre-launch. I'll now turn the call back to Elizabeth.

Thank you, Marina. So joining us for the Q&A portion of the call is our Vice President of Finance, John McCabe. And before opening the call to questions and handing it to the operator, I'll just ask the participants ask a question and perhaps one follow-up and then re-enter the queue if they have more questions.

Operator, go ahead and you can give your intro for Q&A.

(Operator instructions) Our first question comes from the line of Mara Goldstein with Cantor Fitzgerald. Your line is now open.

Hi. Thanks for taking the question. I just was hoping for some clarification on something that Tom said. Could you elaborate on what you mean by product configuration?

Well, what we are trying to achieve is clearly a distinct product from the consumer product. And what we envision is a orally dissolving tablet that quickly disperses that is easy to use for our nocturnal leg cramp patients and for neurological patients.

Okay. And that formulation work, is that being done outside the company?

Both outside and inside.

All right. Thank you very much.

Our next question comes from the line of Josh Schimmer with Piper Jaffray. Your line is now open.

Thanks for taking the question. One for Tom and then one for Marina.

Tom, can you elaborate on the new cramping model in athletes that you alluded to in the prepared remarks? And then for Marina, as you think about pre-defined measurements of success for establishing the cult brand, are they primarily social media-based? If so, what metrics will you be following? And what kind of claims do you think you'll be able to promote for the consumer product? Thanks.

Yes, sure, Josh. Thanks for the question. We've thought very hard about what our potential other models of cramping that are a little bit closer to the real world. And for that reason, we've talked to a number of experts in the field. We will be presenting data on this alternate relational cramp model which does not involve any electrical induction of cramps, just, really, a positional and effort related cramp model. And we'll be presenting that data at the upcoming Experimental Biology Conference.

So this is sponsored research by the Company and we're very grateful for the interest that we've received in the academic research community.

Marina, you're up.

Sure. So in answer to your questions, Josh, starting with metrics. So they fall into three buckets. One, brand health, lets us look at our sub-culture in terms of endurance athletes and assess the awareness of our branding message among the sub-culture. Also lets us look at the image of our brand, vis-a-vis, the consumer and the level of interest in it. Second, social advocacy, to your point, which focuses on how much a part of the culture of the zeitgeist we become and how positive is that chatter. And then the third is the path to purchase which looks at traffic and conversion rated each day of the purchase journey. And that looks at how convincing we are to consumers.

As it relates to claims, we are going out with two claims -- prevents and treats muscle cramps and also scientifically proven to prevent and treat muscle cramps.

So we're very happy to have that claim, the scientifically proven.

All right. Thank you.

Our next question comes from the line of Joe Pantginis with ROTH Capital Partners. Your line is now open.

Hi, good morning. Thanks for taking the question. Maybe two quick questions for Marina as well. Can you discuss the stability of the consumer product? And then also, do you have any anecdotal data for how many of the 100 bottles were used in the Super Bowl?

So starting with the Super Bowl because that's very exciting, we actually have a relationship with the neurosurgeon of the Super Bowl who absolutely said that all 100 bottles were used and would have liked more.

As it relates to stability of product, it is 100% stable. And we have a shelf life of 12 months working to an 18-month shelf life.

Thank you very much.

(Operator instructions) Our next question comes from Chris Howerton with Jefferies. Your line is now open.

Hey, good morning. Thanks for taking the call. Most of the other questions were asked. But I was curious if you can give us a range in terms of what premium pricing might mean? Or maybe even just a comparable product that we might be familiar with on the consumer shelf?

So if you think about 5-Hour Energy at 3 bucks, we will be well-premium to them because we have a very differentiated product, we are creating a whole new category in sports nutrition. And we are the first scientifically proven product to prevent and treat muscle cramps, we know we can command a premium price with a significant gap between those types of products in a shot form in ours. So, suffice to say, it will be well above that price.

The price elasticity work that was done was in the range of $5 to $8.

I see. Okay. And then just a quick follow-up, what kind of information will be disclosed in the future after the consumer launch has happened? Will it just be sales? Will there be unit number? Or are you still kind of thinking through that strategy?

Well, certainly, we'll report sales and revenues. And then the metrics that Marina talked about in those three buckets, those are items that we will also be discussing as we indicate that, in the early days, certainly, revenues are not as meaningful given the cult brand strategy.

Right. Okay. All right. Well, thanks a lot.

I'm showing no further questions in queue at this time. I'd like to turn the call back to Christoph Westphal for closing remarks.

Great. Thanks to all of you for joining us today at Flex Pharma as we work to define the positive impact of Chemical Neuro Stimulation for reducing cramps and spasms in several settings. We are excited to be building a leading neuromuscular company built on our strong foundation of excellent people and great science.

Thanks so much to all of you for joining us this morning. Take care.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone, have a great day.