Salarius Pharmaceuticals Inc (SLRX) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Flex Pharma First Quarter 2015 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time.

(Operator Instructions).

As a reminder, this conference is being recorded.

I will now turn the call over to your host, Elizabeth Woo, Senior Vice President, Investor Relations and Corporate Communications. Please go ahead.

Thank you, Stephanie. Good morning. Thank you for joining us to discuss Flex Pharma's First Quarter 2015 Financial Results as well as our recent progress and outlook. Earlier today, we issued a press release announcing recent business highlights and detailing our first quarter 2015 results.

You can find these documents on our website at flex-pharma.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 our future potential product candidates and studies and our expectations regarding our capital allocation 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 or 10-K filed with the SEC and other filings we made 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 will provide a brief overview then open it up for Q&A.

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

Thanks, Elizabeth. Thank you for joining us today.

We believe that (inaudible) has made an important discovery regarding the mechanism of, and treatment for cramps and spasms. This discovery may allow Flex Pharma to provide solutions for patients and consumers in need.

Specifically, 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 MS, ALS, Parkinson's and many other serious diseases. In recent months, there has been a number of positive developments in Flex Pharma.

Recall that the activation of ion channels forms the basis of Flex Pharma's scientific approach, and members of the Scientific Advisory Board are leaders in this field. Flex Pharma co-founder Rod MacKinnon, who is also on our Board of Directors, was awarded the Nobel Prize in 2003 for his work determining the structure of ion channels and showing the mechanism by which they select for particular ions.

Flex Pharma SAB member David Julius, Professor and chair of the Department of Physiology at UCSF, and also a member of the National Academy of Sciences and the Institute of Medicine, first discovered the TRP ion channels and illustrated the importance they play in diverse physiological functions.

Dr. Julius authored the paper recently published in Nature that was on April 8, 2015 with the co-crystal structure of our active small molecules complexed with TRPA1. Thus, within the past 18 months, the co-crystal structures with our active small molecules of both TRPB1 which was in December 2013 and TRPA1 targets have been published in Nature.

On a clinical side, Dr. Thomas Wessel, our chief medical officer, will discuss our platform presentation at the American Academy of Neurology and the nocturnal leg cramp study recently initiated in his comments.

With roughly $80 million raised in net proceeds from the sale of approximately 5.5 million shares in the IPO at the end of January, our March 31 cash position is approximately $110 million. We believe we have sufficient capital to fund operations until the middle of 2018, assuming no revenues from product sales and also assuming no partnering.

Third, on the consumer side, Marina Hahn, our president of consumer and our board member and investor John Sculley, had a strong record of bringing brands to market and establishing leading market positions. Marina is building an excellent team of brand builders and marketers to ensure a solid rollout.

We were pleased to receive NSF certification through the significant milestone in the development of our company. This is an important step forward as our talented team works to develop and bring to market a proprietary formulation for consumers [based] upon Dr. MacKinnon and Dr. Bean's breakthrough scientific insight. Additionally, the consumer group has initiated experiential marketing studies related to cramping in athletes with encouraging initial findings.

I'll now hand the call to Marina, who will update you on our consumer plans.

Thanks, Christoph. Good morning, everyone. As you know, a vital part of our business is developing and bringing to market a consumer brand that we expect will appeal to a wide range of professional and amateur athletes. Our brand is inspired by our founder, Rod MacKinnon, a Nobel Prize-winning neurobiologist and endurance athlete. And we are confident that our authentic back story will resonate among millions of athletes.

Our target market of amateur and professional athletes is significant, with millions of Americans engaged in a wide range of sports, where participants are particularly keen about the nature of the gear and nutrition they use to achieve best results.

I'm pleased report that we have continued to make great strides in the development of our consumer brand during the past few months by building on a strong foundation created by Rod's scientific discovery. We are very excited about the brand and our progress. We are dong nothing less than trying to create a new breakthrough consumer category called neuromuscular performance. We are currently working toward a June pre-launch of the brand at which time a beta website will go live and begin to provide foundational information necessary to begin creating anticipation and excitement for our brand.

We have already begun seeding a version of this product with athletes, establishing credibility with the endurance sports community and also educating, evangelizing and building demands with our target consumers.

Working with the former head of the Gatorade Sports Institute, we are conducting extensive marketing research toward demonstrating the efficacy of the product in athletes and we have been pleased with the early results.

Earlier this week, we announced that our formulation has earned certification from NSF International Certified for Sport Program, an important milestone in the development of the product. The program certifies ingredients and test products to ensure they do not contain contaminants or banned or prohibited substances and is used by the MLB, the MLB Players Association, the NFL, NFL Players Association, the PGA, LPGA, and the Canadian Center for Ethics in Sport.

We believe what we're developing will be a real game-changer, literally and figuratively, for high achievers who want to be unstoppable and are interested in products that optimize athletic performance and provide peace of mind. Our proprietary formulation has the potential to inform a range of products in the healthy, active lifestyle category. So, having NSF's validation is solid progress toward this goal.

As I mentioned on our previous earnings call, we were taking a strategic approach to the launch of this product, using a community-centric, word-of-mouth, social media, PR-based approach. We are currently working on a range of important marketing initiatives which include identifying potential endorsement opportunities, locating and deploying our team in attractive geographic markets, and finalizing the product in premium packaging. To capitalize on what we see as markets with significant intellectual and athletic capital, we will be initially launching the brand in the Los Angeles, Boston, Boulder and Aspen markets. Each of these markets have a high preponderance of endurance athletes, and represents a solid intersection of brains, brawn and buzz.

Additionally, we have expanded our team in the past few months with senior level executives to build our expertise in a couple of important areas, including distribution and supply chain logistics. We are still optimizing the product inspired by Rod MacKinnon's original formulation and believe the final product will be organic and GMO-free, which will enable us to tap into the highest growth segment of the consumer market. For competitive purposes, we are intentionally doing this pre-launch in a stealth mode of sorts, so I can't discuss our plans in more detail. But as we approach the official launch in the first half of 2016, you can expect that we will provide considerably more specifics about our products and our business approach in consumer markets.

I will now hand the call to Dr. Thomas Wessel, our Chief Medical Officer, for an update on Flex Pharma's clinical efforts.

Thanks, Marina. First, I'd like to mention that our scientific co-founder and National Academy of Science member, Dr. Bruce Bean, presented our human proof of concept data in an oral platform presentation at the recent annual meeting of the American Academy of Neurology.

These data represent the first human proof of concept data for our proprietary formulation in three separate studies in the electrically-induced muscle cramping model. The treatment demonstrated a statistically significant overall treatment effect reducing cramp intensity by three-folds compared to subjects taking a vehicle control with a key value of less than 0.0001.

Each of the three studies was also individually statistically significant. Secondly, we have made clinical progress with the initiation of our human proof of concept efficacy study in nocturnal leg cramps with the same formulation. This randomized, blinded placebo-controlled crossover study was expected to enroll approximately 40 subjects who experience nocturnal leg cramps at least four nights per week.

Nocturnal leg cramps can cause severe pain, interrupted sleep, reduced quality of life, and interference with activities of daily living. And an estimated 4 million Americans over the age of 65 suffer every night from leg cramps, a condition for which there is a significant unmet need since there are no approved drugs in the United States.

With the aging population demographics here and elsewhere, and the known association of nocturnal leg cramps with age, we expect that the number of people seeking treatment for nocturnal leg cramps to increase considerably. As a neurologist, I'd seen firsthand how much need there is for a therapeutic option to treat this condition. We hope our efforts will ultimately help the millions of those who suffer from nocturnal leg cramps. We are also looking to initiate studies in other settings, most likely MS in the second half of this year.

Now, I'll turn the call back to Elizabeth.

Thanks, Tom. So, joining for the Q&A portion of the call is Jennifer Cermak, our VP of R&D and John McCabe, our VP of Finance. Before opening the call to questions and handing to the operator, I just ask that participants ask, you know, no more than a couple of questions and then allow others to have their question answered. If you have more questions, just please rejoin the queue.

Operator will now open the call to take questions. And if you could introduce with name and company affiliation. Thank you.

Thank you. (Operator Instructions).

Our first question comes from Joe Pantginis with Roth Capital Partner. Your line is open.

Hey, guys. Good morning. Thanks for taking the question. A couple of questions. First, does your cash runway guidance take into account the potential endorsement contracts for the consumer product?

Joe, this is John. No, it doesn't -- it doesn't assume any partnership and it doesn't assume any revenue and that cash brings us to mid-2018.

Okay, great. And then, with regard to the pre-launch activities, I know there is a lot of a competitive landscape that you discussed on the prepared comments. Is optimizing the final consumer product the main gating factor right now or are there others that you can point to prior to launch?

Well, we're making -- we're working on a number of fronts, but in the early stages in the soft launch, where we're seeding the discovery, that means establishing endurance sport credibility, educating people and evangelizing our early adopters. We want to set a foundation of the science and bring together early adopters in thee sports world that would include experts in the field.

We are also working on the product as well as early distribution. So, that's the plan.

Great. And then maybe just a very quick housekeeping question. With regard to shares outstanding, I just wanted to get a sense of the shares as of today because you have a particular -- that's being processed from some of the IPO shares.

Yes, Joe, this is John again. So, as of April 30, we're about 17.9 million shares outstanding. The unvested restricted shares they total about 2.9 million at March 31st and those are going to vest over approximately the next three years. So, that'll impact EPS as they continue to vest.

Great. Thank you very much, guys.

You're welcome.

Thanks, Joe.

Our next question comes from Nicole Miller with Piper Jaffray. Your line is open.

Nicole?

She's on mute.

Yes, your line is on mute. Can you please un-mute it?

Maybe if we try --

We'll move on to our next question. Our next question comes from Mike King with JMP Securities. Your line is open.

Mike?

Sorry. I muted out.

I'm just wondering if you could talk about the certification and why you believe that's important. I understand that, you know, the various athletic organizations granting recognition. But what in a practical sense do you think it means?

Marina, maybe I'll --

Sure.

-- take that first and then add if you like. Well, we, we you know, a lot of owners of a lot of sports teams are investors in this company and as we've had discussions with them and the trainers and the docs of these various teams, it has become clear to us that no pro athlete would take any product without NSF certification. And so, it's a prerequisite to start working directly with pro athletes in terms of sampling and getting experiences with them.

Marina, would you like to add to that?

I think that's absolutely right, the fact that this ensures that they don't contain any contaminants or banned or prohibited substances is the, you know, the name of the game here. So, it's been a very important milestone for us in developing the product.

Great, and then just to follow up on the medical product, can you just talk about the timelines for POC trials and where those sites might be?

Yes. So, we're obviously really interested in prosecuting those proof of principle studies and we're quite interested, of course, in the data that we hope to have by the middle of next year via the initial study in nocturnal leg cramps in the United States by mid-2016.

We're also quite interested in looking in locations like Europe and Australia at treating patients and we're looking forward to, you know, letting you all know when we are able to move forward in those kind of settings.

Okay. And if I might, just one -- last one quickly and just related to the medical product, do you have any update on timeline for proprietary product rather than the natural product formulation? Thank you.

Yes, you know, it's really -- I mean, that's a great point. We, of course, are in a fortunate position if we're able to move forward and get approval for these drugs to have market exclusivity, because none of them have ever been approved as oral drugs in the United States or in Europe.

And so, we have a lot of proprietary positions just by virtue of being the first to [recourse] that formulation patents and we have these very interesting patent filings that argue for the first time, you could have therapeutic neurostimulation by activating TRP ion channels which we think are broad mechanism claims, you know, I know you and I worked many years ago on [Almylum] and people,. I don't think understood early on when you discover a new area of biology that was mechanism claims and patents could be quite powerful but we actually think that these are quite interesting here as well.

You knew it, Mike, though. I always knew you knew it.

Well, I want to ask questions that I know the answer to.

Smart man. Okay. Who's next?

Our nest question comes from Mara Goldstein with Cantor Fitzgerald. Your line is open.

Thanks for taking the question. I have two, and the first, really, I know that we have discussed this in the past, but I'm just curious as to -- as you envision the nocturnal leg cramp clinical trials, how you're going to try and eliminate or dampen down any [Periosec] bias which has been an issue in some these other nocturnal leg cramp trials that all patients over time tend to show improvement even though there is no positive effect of treatment that are given?

Yes. So, you know, the study for our U.S. population is outlined in our 10-K and that will be a randomized one, it's a placebo-controlled study and what we're trying to achieve, of course, that there is a crossover period that has a washout period in between to show that some of these carryover effects are really minimized. There are different ways, of course, of approaching the data and we can also look at, you know, effect that actually cut out some of the treatment days at the front end of both of these crossover periods.

Either really exploratory studies that are meant to give us more of a feel for the indication that we're getting into and understanding what the effect sizes are that we can observe at how sustained they are.

Okay. Okay, thank you.

And I had a question, because it really relates to the commercialization of a consumer product. I know that we've discussed cash resources from a, you know, and how long that you think that the cash -- [front cash you have] will left. But I'm just curious from a inventory work and capital balance sheet. You know, what kind of changes we could expect to see as you begin through that period of launch? I mean, are we going to see sort of a dramatic inventory build or it would be sort of more gradual?

Yes, Mara, this is John.

Thanks, John.

So, we're not going to provide guidance on spend. We are certainly looking closely at those as Marina works on the commercialization of a product. We will say that on the consumer side we expect that spend to be about 20 to 25% of our total spend. And you'll see more details come as we move forward and progress towards the launch.

Okay. Thank you.

You're welcome.

Our next question comes from Bryan Czyzewski with JMP Securities. Your line is open.

Oh, hi guys. Sorry about that. Mike asked all of my questions already, so --

Well, Bryan, thanks for being always on top of all the ion channel stuff.

Yes. I love that stuff.

Great. Next question?

Our next question comes from Ryan Martin with Jefferies. Your line is open.

All right, thanks. Marina, I know you talked about having some initial market research results. I was wondering if you maybe -- you said, I think, it was interesting, I was wondering if you could share some of that with us.

At this point, we're really still in the process of conducting research. So, we don't have the data ready yet, but expect to hear more about this in future calls.

Okay. And then on -- you said you're doing a pre-launch --

Uh-huh.

-- in June and, you know, how long after that do you think you will actually have your formal launch?

We plan to launch in the first half of 2016. So, there's been no change to that timeframe.

Okay. Thanks.

Uh-huh.

So, Ryan, I just wanted to add, the studies that we have in these athletes, they're designed so that we can learn about the subject's muscle cramps and the subject's experience with the product. So, the participants answer questions relating to their cramp severity, duration and whether the treatment reduced the cramp incident.

We also asked questions intended to assist our product development efforts such as the importance of calorie count and as Marina has noted, you know, our preliminary findings are encouraging.

Thanks.

Again, ladies and gentlemen, to ask a question, please press star, then one, on your touchtone telephone. Our next question comes from Nicole Miller with Piper Jaffray. Your line is open.

Thank you. Good morning. I'm coming from the restaurant/consumer side. I just kind of wanted to back up, please, and understand that can this benefit someone in any sport when you talk about athletes, but will certain sports benefit more also considering the same question for age and gender? Or would this be wide-reaching with equal impact?

So, to answer your question, it's relevant for all athletes, all sports. We are just starting with the endurance athlete market, inspired by our Nobel Prize-winning endurance athlete, Rod MacKinnon. And it also happens that endurance athletes have a huge preponderance to cramp. Having said that, there are a wide variety of sport verticals where the athletes cramp pretty significantly, which include tennis, basketball, et cetera. That is just our starting point.

Thank you. And then when I think about restaurants, it can be -- we would look back and say taste, being convenient, the whole value proposition can sometimes be equally important as the "good for you" nature of the food. And so, I'm just wondering how you will talk about the authenticity of your products and the formulation being very scientific and very authentic, yet balancing that with some of the other aspects like [thermal] calories and I'm just wondering what those other aspects would be over time the balance that out in terms of how it tastes and the value that could ultimately reach --

Yes, we're still in the stage of product formulation. So, we, right now, have the low-calorie product. But we will be working through all that messaging to come up with messaging that's appropriate for a lifestyle brand that also balances, you know, hard science with a lifestyle approach.

So, all that work is in process.

Thanks again.

Nicole, it's great to have you on. I think you're probably aware, we don't have yet that much following and people who understand us on the consumer side and I think we're just at the beginning of that. One added way to answer the question of the sports is just to look at the folks who got directly or indirectly involved as investors in terms of the sports. You know, that obviously includes the Celtics of basketball indirectly, you know, baseball, and Liverpool, so the Red Sox and Liverpool through John Henry and then obviously, the Patriots, there's a lot of cramping in football.

I don't know if you have school-aged kids but in summer when they go training camp there's a lot of cramping. They're so -- it's really quite prevalent across the spectrum and you see that in the -- in the various teams that are involved with us.

Fantastic. I do have a little one with growing pains, so --

Yes. You know, it's interesting. My 12-year-old son cramps a lot. It's actually quite prevalent in kids as well.

Yes.

Well, it's great to have you. I think with that, do we have further questions?

Operator, there are no more questions, correct?

Correct. I'm showing no further questions. I would now turn the call back --

Great. I'll just close. Thank you. Thanks to all of you for joining us this morning. Thank you very much for the questions. You're always helpful and we really appreciate many of you coming up with ideas and thinking of different indications and areas we can go after, it's incredibly helpful to us. Thanks to all of you for joining us today.

At Flex Pharma we're excited to be building the leading neuromuscular company. We know that it's being built on a solid foundation of excellent people. We hope to see many of you at the upcoming June Investor Conferences in New York and you're always invited to come up to the Mecca of Genius Jock Boston. Visit us at Flex Pharma anytime you want. Thanks very much. Bye-bye.

Thank you. Ladies and gentlemen, that does conclude today's conference. You may all disconnect, and everyone have a great day.