PLx Pharma Inc (PLXP) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the PLx Pharma Fourth Quarter 2017 Results Conference Call. (Operator Instructions) As a reminder, this conference call may be recorded.

I would now like to turn the conference over to Lisa Wilson, Investor Relations at PLx Pharma. You may begin.

Thank you, Nichole. Welcome to PLx Pharma's Q4 2017 earnings results call. This is Lisa Wilson, Investor Relations for PLx.

With me on today's call are Natasha Giordano, President and Chief Executive Officer; and Rita O'Connor, Chief Financial Officer of PLx. You can also access the webcast of this call through the Investors section of the PLx website at plxpharma.com.

Before we could started, I would like to remind everyone that any statements made on today's conference call that express a belief, expectation, projection, forecast, anticipation or intent regarding future events and the company's future performance may be considered forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to the PLx Pharma's management as of today and involve risks and uncertainties, including those noted in our press release issued this morning and our filings with the SEC.

Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statements. PLx specifically disclaims any intent or obligation to update these forward-looking statements, except as required by law.

A telephone replay of the call will be available shortly after completion for two weeks. You will find the dial-in information in today's press release. The archived webcast will be available for one year on our website plxpharma.com. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on March 23, 2018. Since then, PLx may have made announcements related to the topics discussed. So please reference the company's most recent press releases and SEC filings.

With that, I'll turn the call over to PLx's CEO, Natasha Giordano.

Thank you, Lisa. Good morning, everyone, and thank you for joining us. I now would like to update you on our key developments and accomplishments since our last call. As a late stage specialty pharmaceutical company, our objective remains to approve the efficacy and safety of selected existing oral non-steroidal anti-inflammatory drugs or NSAIDs beginning with aspirin. Aspertec is the first ever FDA approved liquid filled aspirin capsule, and we believe it has the potential to become the new standard of care aspirin for physicians treating patients at risk of having a cardiovascular or cerebrovascular event.

Aspertec 325 milligrams was approved by the FDA through a 505(b)(2) application for over-the-counter distribution and our clinical data support a best in class aspirin positioning over the widely used enteric coated aspirin.

We recently identified some unexpected inconsistencies with an outsourced key ingredient that is impacting the production of a quality product. We are now working to source an alternate supply of material to ensure consistency in order to produce the highest quality products.

As a result, the timing of the filing of our CMC supplemental new drug application to the FDA for Aspertec has shifted and we now expect to launch both dosages by mid-2020. While this process may sound lengthy, similar to any CMC change, this effort will require rigorous testing and gathering sufficient data including analytical, dissolution and stability data on the newly sourced material to ensure our high product quality standard is met.

We remain singularly focused on the key attributes of the product to ensure it's reliable and predictable antiplatelet benefits and improves GI safety, which positions Aspertec as the new standard of care. I am excited to show that the Journal of the American College of Cardiology has just selected the paper entitled: Enteric Coating and Aspirin Non-responsiveness in Patients with Type 2 Diabetes Mellitus to its editor in chief top picks from 2017 list.

Dr. Deepak Bhatt, primary investigator, executive director of cardiovascular programs at Brigham and Women's and lead author on the paper is the chair of our scientific advisory board. We are extremely proud of this recognition as this study was chosen from among hundreds conducted in 2017.

I'm also pleased to share that PLx has been granted five additional patents expanding our patent portfolio from 44 to 49. Strengthening our global patent portfolio continues to be a priority for us and the issuance of these additional patents offers strong intellectual property protection through 2032.

Now I'd like to turn the call over to our CFO, Rita O'Connor. Rita?

Thank you, Natasha. In the fourth quarter of 2017, we recognized revenue of $340,000 including $140,000 from a federal grant received earlier in the year from the National Institute of Health. This grant is in support of PLx's novel formulation of aspirin for chemoprevention of colorectal cancer.

Revenue also included the recognition of $200,000 of deferred revenue recognized upon the completion or obligations under our licensing agreement. In 2012, we entered into a license agreement with Lee's Pharmaceutical granting them rights to develop Aspertec in China. In connection with that agreement, we received $400,000 in payments of which $200,000 was recorded as deferred revenue and as such will not recur.

This past October, we mutually terminated the agreement thus permitting us to recognize the revenue. We had no such revenue in the fourth quarter of 2016.

Research and development expenses were approximately $2.4 million for the fourth quarter of 2017 versus minimal R&D expenses in the fourth quarter of 2016. The spending in this category primarily relates to the technology transfer and contract manufacturing activities related to the development of Aspertec.

Also included in our R&D expense this quarter was spend related to the initiation of a clinical study for 81 milligram dose of Aspertec, this trial is not required for regulatory purposes but will be used purely for commercial support. We do not expect to continue spending on this trial in 2018.

General and administrative expenses totaled $1.9 million in the fourth quarter 2017 compared to $1.4 million in the fourth quarter 2016. The $500,000 increase is due to higher compensation and benefits of $400,000 and a recorded loss on the closure of the former Dipexium New York City office lease of $200,000. We recently sublet this office space which is currently offsetting a significant portion of the rent.

Professional and administrative fees including those associated with being a public company also increased approximately $300,000. These increases were partially offset by lower non-cash stock-based compensation expense of $400,000.

This quarter we also added a new line in our P&L titled impairment of intangibles. We recorded a non-cash charge of $2.3 million or $0.26 per share. This charge is due to the write-off of the in-process R&D and intangibles related to the former Dipexium product, Locilex. We inherited this asset as part of the PLx-Dipexium merger last year. However consistent with our operations strategy, we remain focused on utilizing our resources for the commercialization of Aspertec, therefore we will not pursue the further development of Locilex and thus wrote off the associated intangibles.

Other expense was $1.6 million in the fourth quarter 2017 compared to $32,000 of net expense in the fourth quarter of 2016. The expense in 2017 included a non-cash charge of $1.4 million or $0.16 per share related to the change in fair value of the warrant liability associated with the registered direct offering in June 2017.

We also recorded interest expense of $272,000 in 2017 on our $7.5 million term loan with Silicon Valley Bank $114,000 of this interest expense is non-cash and was recorded as amortization of the debt discount and pay-off fee.

Our net loss was $7.9 million or $0.90 per share for 2017. Compared to a net loss of $1.5 million or $0.33 per share in the fourth quarter of 2016. As a reminder, this net loss of $0.90 per share included non-cash charges of impairment of intangible assets and change in warrant liability of $3.7 million or $0.42 per share.

As of December 31, 2017, we had $24.4 million in cash and cash equivalents. Given the shift in our timing of our launch to 2020 with proper cash management, we now expect our cash to take us through at least the next 12 months.

With that, I'll turn the call back to Natasha. Natasha?

Thank you, Rita. While we are disappointed with the shift in timing, we remain committed to the development of and future approval of our best in class next generation aspirin products. To fully understand the scope and potential impact of Aspertec some market context may be useful.

Today, aspirin is widely used for the treatment and prevention of cardiovascular disease, roughly 107 million people or about one-third of the U.S. population fall within categories for which a physician would recommend aspirin. The data show however that fewer than half of those who need it actually use aspirin, leaving more than 50 million people who could benefit from aspirin use vulnerable to cardiovascular events.

Professionals often attribute this lack of compliance to the occurrence of GI complications associated within NSAIDs. Enteric coated aspirin developed to address the GI complications of NSAID use is widely considered the current standard of care accounting for more than 90% of the market. Enteric coated aspirin is far from ideal however and does not offer better GI safety and regular aspirin, in fact it demonstrates variable and incomplete antiplatelet activity. And the antiplatelet protection it does offer is not equivalent to that of regular aspirin.

Every important clinical study supporting the cardiovascular benefits of aspirin has been conducted using immediate release aspirin or regular aspirin, not enteric coated aspirin. With the exception of one study that used regular aspirin for the first dose and then enteric coated aspirin thereafter.

A Japanese study published in December 2014 issue of JAMA, which included more than 14,000 high risk primary prevention patients comparing 100 milligrams of enteric coated aspirin with no aspirin was stopped after five years. The study concluded that enteric coated aspirin offered no cardiovascular benefit. Enteric coated aspirin does not protect the GI tract and in fact may cause gastric ulceration because it offers only unidirectional protection as it enters the stomach. Once the tablet passes into the duodenum, it disintegrates releasing free aspirin which reflexes back into the stomach potentially inducing surface injury.

By contrast, Aspertec offers greater efficacy and tolerability. Our patented PLxGuard delivery platform is able to selectively release drugs directly in targeted portions of the GI tract. This targeted delivery improves the absorption of the aspirin and reduces acute GI side effect.

Our clinical trials were designed to show greater efficacy versus the market leader, enteric coated aspirin, and to demonstrate improved acute GI tolerability versus regular aspirin. In doing these studies, we look for complete aspirin response meaning that the antiplatelet therapy suppresses surges of thromboxane completely at the 99% inhibition level.

Thromboxane inhibition is considered the surrogate marker for aspirin effectiveness by both the FDA and in clinical practice. Aspertec 325 milligram had predictable and reliable absorption and antiplatelet activity whereas 25% of the patients treated with enteric coated aspirin in the study experienced minimal absorption of aspirin. Importantly, nearly 84% of the patients treated with Aspertec had a complete aspirin response compared with only 42% of the patients treated with enteric coated aspirin.

What's notable is that these were the same patients who were washed out and then crossed over to enteric coated aspirin and only half achieved complete aspirin response. As you can see, formulation does matter and is critical to the efficacy of our product which is why we remain extremely focused on producing a consistent high-quality product. Based on these prior clinical results, Aspertec 325 is three to five times more likely to achieve a complete aspirin response compared with the current standard of care thus offering a clear benefit to patients and physicians.

Our data also suggests that Aspertec 325 has a 65% lower risk of acute gastric ulceration than regular aspirin. Aspertec's lipid matrix release, which is based on the patient's individual pH level, presence of bile and enzymatic digestion results in both a predictable release pattern and fewer gastric erosions and acute ulcers. We believe that Aspertec's compelling efficacy and safety data will make it an attractive choice for cardiologists and other specialists in treating their patients.

On the commercial front, we will continue to develop an integrated multichannel strategy that will focus on specialists who care for these high-risk cardiovascular patients. We are also focusing on educating and raising awareness among pharmacists. We have had valuable discussions with several drug store chains and other retailers with pharmacies on the idea of dual placement within the store. Meaning that patients would potentially be able to purchase Aspertec, either from behind the pharmacy counter with the pharmacist or at the front of the store on their own.

Our scientific advisory board is another critical component of our overall marketing efforts, as we engage with the medical community. These world-renowned thought leaders representing specialties across cardiology, gastroenterology and platelet pharmacology believes strongly in Aspertec's potential and meeting an unmet medical need. Their advocacy within the medical community is important as we move forward to bring Aspertec to market.

As I wrap up my comments this morning, I also want to share that we had an exciting opportunity earlier this month to debut Aspertec and PLx at the American College of Cardiology Conference in Orlando Florida. There were approximately 15,000 cardiologist and interventional cardiologists in attendance. We engaged with our scientific advisory board, top cardiology academic thought leaders, plus clinical investigators and the initial feedback was extremely positive.

We see significant opportunities to fulfill a large unmet medical need and remain committed to producing a high-quality product that offers reliable and predictable antiplatelet benefit. We are positioned to offer the best in class aspirin treatment option for nearly 50 million at risk patients that provides faster acting, more reliable and more predictable efficacy. Our management team is deeply committed to executing on our plan to provide a novel and innovative aspirin product that offers a more effective choice to physicians and their patients.

With that, I'd like to open the call for questions. Operator, please go ahead with the instructions.

Thank you. (Operator Instructions) Our first question comes from the line of Elliot Wilbur of Raymond James. Your line is now open.

Not the conversation I was expecting to have at this point in time, but stuff happens as they say. Maybe first, Natasha, just want to before talking about Aspertec specifically, maybe just talk about the company's recent experience at the ACC in terms of KOL interaction, physician action? Some of the impressions that you felt were generated. I'm particularly interested I guess in sort of the efficacy message of Aspertec. Obviously, the GI safety resonates very, very well, easy to understand, but seems like the efficacy benefits are still very much underappreciated, just want to sort of get your feedback on some of the impressions around the product on the efficacy side?

Thank you for asking that question because I came back from ACC pretty exhilarated. We invested, we had a booth there, I had my team there talking to many cardiologists as they came by the booth. But what was really promising and extremely positive was the caliber of physicians that we met with personally one on one.

So you may remember that we have our Chief Medical Adviser, Dr. Deliargyris, who is an interventional cardiologist himself. And we were able he and I to meet with, my goodness, over a dozen cardiologist thought leaders in the U.S. Physicians that lead cath labs and hospitals in the top institutions that we'll be targeting. So, places like Sinai, Columbia, Stanford, Brown. We met with a number of these physicians and the overwhelming feedback was extremely positive specifically on efficacy. They do realize that enteric coated aspirin doesn't deliver the results they were hoping for and they do realize that their patients are at risk.

They also understand the GI component is one that might prevent a patient from being compliant. These 50 million or so patients are at such high risk to develop an event or their second event. They need consistent reliable and predictable antiplatelet efficacy.

So, they're all very interested in meeting with us again, they've reacted to the data very positively. The study that we have published in [JAC] was a top editor in chief pick Dr. Deepak Bhatt was overwhelmed with some questions from his peers. And so, our advisory board is very committed to the educational process that needs to occur with all the cardiologists in the country. But it was quite exciting to have those discussion one on one.

Okay, thanks. Then maybe we can move on to more pressing matters here. I guess with respect to the issues you identified with the inactive ingredient. Can you -- maybe just give us a little bit background and sort of in terms of how it was identified, was it during stability testing. Obviously, the 325 milligrams has been improved for some time and I'm assuming you didn't see similar issues with the 325 milligrams. So, not sure if it's just some sort of new development at the supplier or if there is just something about the inactive itself where maybe there is some instability over a long period of time. But just maybe a little bit of background in terms of sort of how the issue arose and how it was identified.

Yes. So, you are right in that we've not ever seen any issues with this ingredient. We've only recently discovered some inconsistencies within certain specifications. And so, we immediately did a thorough evaluation and after much thought really it became clear that obtaining an alternate source of material was really the best thing to do in the long-term interest of the patient, primarily the brand and PLx.

So, it's been recently identified and we made a decision to alternate a source of materials and we have already contracted with our manufacturer and in the process of sourcing these materials.

Okay. And just if possible any color on why decision was made to seek alternate supply versus simply trying to fix the issue whatever it may be from the existing supplier and then line up a backup source?

Yes. So, we spent some time revaluating the source of the issue certainly. But we also wanted to make sure that we took the best possible path that will deliver a consistent and high-quality product. And so, the decision we took was to source from a different type of material. So, in the end, we think that the best possible thing is to get a consistent high-quality product and to do that, we believe that we need to source a different type of material.

Okay. So, what happens going forward? So, the 81 milligram is will be filed with the new material, but what happens to the existing 325 milligram approval? Do you simply file a CD30 or perhaps even assuming it's not a supplemental NDA, but how do you transition that product over to the new material?

Yes. So, we're operating on the assumption that this is going to continue to be a CMC supplement. We believe that that is the appropriate reporting category for this type of manufacturing change. We'll prior to submitting the supplement will request from the FDA a type C meeting and according to their schedule they'll schedule a meeting with us, where we'll further confirm the requirement for the CMC supplement.

The ingredient is used for both doses. So, we will use the data to support this alternate ingredient for both dosage strength, but we believe strongly that this will fall under the CMC supplement to the FDA.

Okay. And I don't know if you had time to fully assess this or not but in -- could you give us some sense of what you believe the incremental costs will be in terms of the switch and then everything you need to do on the regulatory and consulting side beyond what you had previously anticipated?

This is Rita, Elliot. So, we're currently working with the CMO to estimate the total cost of the project because Natasha mentioned this was fairly recent. But we're going to give a revised cash burn estimate. Previously, I think I mentioned it was $5 million to $7 million a quarter, for the remainder of 2018, we're going to reduce that down to $3 million to $4 million. And as you probably are aware we assume some pre-launched marketing in that higher cash burn, which we will defer until later in 2019.

Got it. And then just one last question for you Rita as well. With respect to the term debt, any acceleration clauses in that that would be impacted by shifts in timelines or regulatory events and then any sort of unusual covenants that we should think about in terms of limiting or restricting strategic options not to -- not company strategic options but moves or maneuvers you may take to move this product forward?

Sure. Yes, great question. So SVB has been a great partner to us and they are informed of our developments. Just by way of background, we have $7.5 million with them that we received back in August, we have a second tranche that is contingent on two things, one raising $20 million in financing; and two, approval of the sNDA for 81 milligram by the end of this year.

So clearly, don't think either of those will happen. So, what -- and there is no acceleration. The debt, they actually -- we're starting to pay off the $7.5 million starting in early 2019. So that's if nothing, if we do nothing that's what happens to the existing debt.

However, as I mentioned, Silicon Valley Bank is really willing to work with us to make sure we have a positive outcome. And in terms of covenants, we're actually very fortunate there are none in the -- no significant ones in the agreement other than the ones I mentioned.

Thank you. (Operator Instructions) Our next question comes from one of Ken Trbovich of Janney. Your line is now open.

I guess I wanted to follow-up Elliot's -- Elliot's question sort of presumed that it was an inactive ingredient. But I know from prior experience that one of the competitors in the space actually had a problem with the supply of salicylic acid. And so, I wanted to start there. Can you sort of clarify whether it's the active ingredient or an inactive ingredient?

Yes, it is. So, through our study, we have determined that it is the inactive ingredient. But those sources are readily available and we're in process of sourcing those in-house as we speak. So, we should embark on our plans very, very shortly because we were able to act so swiftly.

Okay. So, we're talking about an inactive ingredient but then you still describe it as a key ingredient. Are we to assume then that it's not the [lecithin] component?

Ken, I'm really not going to go into more specific details on the materials and some of the items that we're working through. This is very, very recent. We're very confident in the plan going forward. Be rest assured that we're doing everything we can to resolve these inconsistencies because ultimately the bottom line is to produce a high-quality product for our patient.

I keep going back to what the AHA has said, in our country every 40 seconds someone has a heart attack. In our country every 40 seconds someone has a stroke. So, our continued focus remains on producing that high-quality product and that's why we reacted so swiftly, and we have some really good and sound plan to bring this product forward.

Sure. No, I'm just trying to better understand the components that are involved simply because obviously there could be [dating] issues, there could be other issues that could contribute to inconsistencies and I think the only supplier that's been discussed in the past whether sort of a key ingredient was on the [lecithin] side, it just doesn't seem like it's a standard ingredient that's used across product. We're just trying to better gauge the certainty with which you can find or identify a supplier for whatever the ingredient is.

I know you mentioned you think you've got [all] lined up. I think we're trying to sort of back into the confidence interval around the timelines. And with that, I guess maybe the other question is for a mid-2020 launch if we're working backwards and we're assuming a four months review of the CMC supplement and assuming that means we're looking at sort of a filing mid next year.

So, if you contemplate the revised plan we're planning to launch both doses by mid-2020 and with the assumption like you said that the CMC supplement is the appropriate reporting category. If all goes as planned, we would expect to file the sNDA about six months prior to launch.

Thank you. And I'm showing no further questions at this time, [I turn] the call back over to Natasha for any closing remarks.

Thanks very much. We continue to be committed to this best in class next generation aspirin product that we believe will positively impact the lives of many cardiovascular patients at risk. We're also very excited about the level of enthusiasm from key thought leaders and experts and the market opportunity in front of us. We look forward to moving Aspertec forward towards ultimate approval and we thank you again for joining us this morning. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. That does conclude today's program. You may all disconnect. Everyone, have a great day.