Salarius Pharmaceuticals Inc (SLRX) 2015 Q3 法說會逐字稿

Good day ladies and gentlemen and welcome to the Flex Pharma Q3 2015 Earnings 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 call is being recorded.

I would now like to introduce your host for today's conference, Miss Elizabeth Woo, SVP of Investor Relations, CC. Ma'am, you may begin.

Thank you. Good morning. Thank you for joining us to discuss Flex Pharma's third 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 third quarter 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 candidate.

Plans for our 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 details 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 obligations 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 and then open it up for Q&A.

And joining us on the call today is Dr. Christoph Westphal, our Chairman and CEO; Dr. Tom Wessel, Chief Medical Officer; and Marina Hahn, President of Consumer.

I'll now pass the call to our CEO, Christoph Westphal.

Thanks Elizabeth. Thank you for joining us today.

At Flex Pharma, we are excited to be at the forefront of investigating chemical neurostimulation, an important discovery by Rod MacKinnon and Bruce Bean, and a novel and perhaps generally applicable method to treating disorders of cramping and spasms stemming from alpha motor neuron hyperexcitability.

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

In recent months, there have been a number of positive developments at Flex Pharma. Number one, we continue to strengthen our board and management team by attracting top talents from both biotech and consumer arenas.

Rob Perez, former CEO of Cubist joined the board of directors. Rob led the launch of Cubist. And prior to joining Cubist, he served as vice president at Biogen where he was responsible for commercial leadership of the $800 million neurology business unit. I've long admired Rob as a thought leader in the biotech community and we're gratified to have his experience successfully transforming a pre-commercial biotechnology company into a commercial organization, as Flex Pharma grows to become a leading neuromuscular company.

Kathie Lindermann who's sitting next to me here today joined Flex Pharma in August as Chief Operation Officer. Prior to joining us, Kathie served as COO of DAVIDs TEA, and prior to that spent 19 years at Starbucks. She held several leadership roles including SVP International Operations and Global Business Systems; SVP Starbucks Service, and SVP U.S. Business Operations.

Kathie's experience in building scalable processes and operating systems will benefit our company as we grow. For those of you who drinks Starbucks, Kathie was the brain child behind the cup marking system, which I'm sure many of you have used this morning.

Number two, on the clinical side, we have a robust human dataset of various formulations with over 200 human subjects tested for safety or efficacy. We have made significant progress in defining our drug candidate. Our recent studies with single agents indicate efficacy in reducing human cramps.

At recent medical meetings, we reported statistically significant data indicating market efficacy in reducing human cramps with purified GMP synthesized single molecules, as well as combinations of two individual molecule compared to our original proprietary extract mixture.

We expect to nominate a clinical drug candidate consisting of one highly selective and specific TRP ion channel agonist. This will represent an important step forward in our drug development path that was planned to initiate future trials in nocturnal leg cramps, MS and ALS, with the soon to be nominated candidate.

Chief Medical Officer, Dr. Tom Wessel will describe these results in his upcoming comments.

Number three, on the consumer side, we have initiated a pre-launch digital and media campaign for our planned launch in the second quarter of 2016. Marina Hahn has built a team with an excellent track record of brand builders and marketers. Our robust sampling program of pro-teams and endurance athletes continues to gain momentum. Particularly given the impact of recent stories published in several influential endurance publications such as Outside, Competitor, Running Times, TriAthlete and Bicycling.

The team has been busy with pre-launch activities including a strong presence at the Kona IRONMAN, where we heard for many elite athletes that the product helps them. By the way, we missed many of our analysts we thought many running there.

Number four, with our end of September cash position of approximately $99 million, we believe we have sufficient capital to fund operations until the middle of 2018.

Number five, at our upcoming Investor Day event on November 10th in New York City at 2:00 pm, we look forward to sharing the progress of both our preparations for the consumer launch next year, and our development effort as we work to define the impact of chemical neurostimulation on reducing cramps and spasms and several important settings.

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

Thanks Christoph.

Our clinical team has been very productive generating data to support our goal of clinical candidate selection. By testing the most potent TRP A1 and V1 agonists and demonstrating enhanced efficacy with purified single agents and double combinations, compared to the original proprietary formulation, we have made significant progress in our product development efforts.

Utilizing our electrically induced model and healthy volunteers, we have studied various combinations of GMP synthesized TRP A1 and TRP V1 agonists, as well as single molecules. To our delight, we've been able to show that single agents significantly reduced cramp intensity compared to the original proprietary formulation of extract mixture. This is an important step forward as it allows us to plan future studies with a single agent.

We've reported this breakthrough at two recent medical meetings in October, at the ECTRIMS and the Society for Neuroscience Conferences.

Many neurologists and scientists who attended our sessions are very interested in the effects demonstrated by this innovative approach.

We are excited to be on the forefront of investigating chemical neurostimulation as a novel method to treat disorders of cramping and spasms stemming from alpha motor neuron hyperexcitability. With our ongoing and future clinical development programs, we expect to define the impact of this therapeutic approach on muscle cramps, spasms and spasticity in different clinical settings.

With our study in nocturnal leg cramps underway, we are now focusing on multiple sclerosis and motor neuron diseases such as ALS as our next added opportunities.

Given that we are very close to nominating our clinical candidate, we have adjusted our clinical plans and subject to regulatory approvals ex-U.S., now expect to initiate a study in MS and a study in ALS in the first half of 2016 with the newly identified clinical candidate, not the extract mixture.

In April 2015, we initiated a study in nocturnal leg cramps of our original proprietary formulation, a mixture of natural extracts. This study is intended to assess the safety and tolerability of our proprietary treatment and explore a number of endpoints related to efficacy.

More than 40 subjects who experienced nocturnal leg cramps at least four nights a week have been randomized and are in the process of completing this blinded placebo-controlled crossover study. We expect to report these results in the first half of 2016.

At next Tuesday's Investor Day, I will share in greater detail our future clinical plans.

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

Thanks Tom. Good morning everyone.

We were very pleased to report that we've continued to make great strides in the development of our consumer brand during the third quarter. As our talented team works to develop and bring to market a proprietary formulation for consumers based upon Dr. MacKinnon's breakthrough scientific insight, we have been seeding a version of the product with athletes, establishing credibility with the endurance board community, and building demand with our target consumers.

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 Noble Prize-winning research, Dr. MacKinnon designed a sports beverage to stimulate sensory fibers and prevent the motor neurons -- nerves from becoming hyperexcited, greatly reducing the risk of cramping.

This novel mechanism of chemical neurostimulation is allowing us to define a new category in sport nutrition, neuromuscular performance.

We are now educating consumers to better product facility and synchronizing communication between the nerves and muscles, allowing the muscles to function properly, thereby maximizing neuromuscular performance.

Part of our strategy is to have a strong participation at key events. As an official sponsor, Flex Pharma had an extensive presence at Kona IRONMAN, one of the most iconic endurance events in the world.

At the IRONMAN Sports Medicine Conference, Rod MacKinnon presented the history and development of his discovery and formula to trainers, coaches, and athletes in attendance.

We also just signed an exclusive partnership with World Champion Triathlete, Craig, named "Crowie" Alexander from Australia. Crowie is a multi-year IRONMAN world champion and currently holds the course record for the IRONMAN world championship. Long known as the King of Kona, Crowie has a definitive sense of what it takes for an athlete to achieve the ultimate in endurance racing.

As part of our partnership, Crowie will incorporate Flex Pharma's proprietary discovery into his training, racing and coaching regimens.

IRONMAN athletes are the toughest in the world, and even the most meticulously prepared athletes can be vexed by cramping.

In addition to Crowie, many athletes around the world who train for the IRONMAN World Championship and suffer from muscle cramps have already been incorporating Flex Pharma's revolutionary discovery into their training and racing.

We sampled the products with IRONMAN triathletes and the response has been positive. The product has been well received by this normally cautious group.

By reaching these athletes and giving them a product that works, we are creating brand evangelizers.

As far as marketing and publicity, we continue to take a strategic approach using a community-centric approach, word of mouth, digital media, and social media. You may have noticed more of our ads popping up on the internet.

One, in September, we kicked off a prelaunch digital/social media campaign to educate early adopters. Some of the most influential endurance sports publications have showcased the science behind our discovery which we expect will drive excitement and demand for the product.

Our scientific breakthrough is featured in the November print issue of Outside Magazine, which is the leading publisher for active lifestyle enthusiast. A full page and itsthenerve print ad with accompanying advertorial is also in the November print issue.

Articles have also been published in Competitor, Runner's World, Bicycling and Running Times among others.

The digital media campaign has driven thousands to our website, itsthenerve.com, allowing us to collect emails for interested athletes.

We continue to work on a range of important marketing initiatives which include event sponsorship, gorilla marketing, media story placements, social campaigns, price elasticity work, and we are finalizing the product and proprietary packaging supporting its premium positioning.

We are launching the product as a cult brand. We plan to recruit key opinion leaders to evangelize for us. In launching cult brands, the strategy is to focus on a small, highly defined target audience, ultimately converting them to believers and regular users.

Companies like Uber, Clif Bar and Red Bull have all employed a cult brand approach successfully, showing a hockey stick growth rate once the product reaches a larger audience.

Our launch next spring will focus on select markets; Boulder, Colorado; Boston, Massachusetts; Los Angeles, California. My field marketing team has initiated activities in these three markets given their high preponderance of endurance athletes, and a solid intersection of brains, brawn, and buzz.

I look forward to sharing with you the amazing testimonials from IRONMAN athletes of Kona on Investor Day.

I'll now turn the call back to Elizabeth.

Thank you, Marina.

So we're going to start the Q&A portion of the call now. And for that, John McCabe, our VP of Finance is joining us. So I'm going to open up the call to questions and hand it over to the operator and just ask that the participants limit themselves to, you know, a couple of questions and then reenter the queue if they have more.

Operator, we can now open the call to questions.

Thank you.

(Operator Instructions)

And our first question comes from the line of Mara Goldstein from Cantor Fitzgerald. Your line is now open.

Thanks very much for taking the question.

I have two, and the first is just on the initiation of the trials for MS and ALS. Can you -- and I know your R&D Day is going to be in -- not that long. But I was wondering if maybe you could give us just a little bit more information in terms of is this a traditional phase 1 or you're going directly into more of a modified phase 2 dosing schedule/trial?

Well, what we anticipate is to really use at least the BID approach, and look at some of the traditional endpoints that you would both for cramps and spasms especially in terms of frequency and intensity, as well as measuring spasticity in these disorders.

Okay. But I guess my question is associated to traditional phase 1/phase 2/phase 3 program that we're looking at.

I think the great news -- this is Christoph, Mara, thanks for the question ...

Hi Christoph.

Hey.

The great news of course is we have a lot of human experience with these agents. And you know, typically you need to do, you know, figure out what your active dose is, all those kind of things in phase 1. Obviously we happen to have a lot of information in humans already. So ultimately we're going to do a typical drug development process, but we're of course starting I think a little bit more advance than a typical phase 1 would be.

Okay, that's great.

And then the second question is more of a financial, and given the pending launch. Can you talk a little bit about the working capital [needs]? I mean, clearly you have cash, but how we should think about your balance sheet going forward.

Yeah, Mara, this is John.

Hey John.

How are you?

So we're not providing (inaudible) to say that our cash will last through mid-2018, and that would include both expenses and working capital requirements.

All right, thanks a lot. I'll jump back in the queue.

Thank you. And our next question comes from the line of Nicole Miller from Piper Jaffray. Your line is now open.

Thank you, good morning.

Could you talk a little bit about -- more about finalizing the consumer formulation versus the medical formulation, and just want to make sure that we and everyone understand how you're going to differentiate the two? Thanks.

Well Marina, why don't you take the second half of the question, but I'll start?

First of all, I know Nicole, you're asking the question because Josh sent me a note saying he's in Starbucks drinking a coffee right now.

Yes, sir.

But you know, it's a great question.

They are completely different products. And I think we have to be really clear and have everyone understand that consumer product is a mixture of natural extracts, you know, with the goal of organic, all natural. It's a drink. And the ultimate drug product we believe, is a fast-dissolve, or fast-melt type single molecule GMP synthesized. So totally different products.

In fact, I'll let Marina address anything related to taste and look and feel. Marina, do you want to pick up?

Sure. So yes, so I've hired a woman whose background is 30 years at Pepsi running all of innovation in R&D. Thrilled to have her as part of the team because what she's been up to with our team is optimizing the product to create a balance between efficacy and palatability. So that we have a good tasting product, but also is efficacious. So we've gone through many iterations and we're at our final stages of optimizing. And we feel really good about the product at this stage.

And then, just, Marina, also on the consumer side, is there a dating step or, I want to say dating factor necessarily, but in terms of getting the consumer product launch?

A dating factor, meaning -- can you explain ...

I guess maybe more so a dating step, like, is there just one thing here that has to click or is it more just like a progression, like a balanced, I guess piece and progression towards getting this launched? There's nothing as [dating mess], right? There's no one factor that has to turn on or off, I guess.

No, absolutely not. We're really, you know, in the high gear to make this launch hugely successful, but there are a lot of moving parts, as you're probably of from supply chain to product to research to marketing, etc. So all of these pieces are in motion now to gear up for launch.

And just -- I will put Josh up from our team to do the Kona IRONMAN. That sounds fair.

Okay. He better start training now.

Thank you.

Thank you. Our next question comes from the line of Mike King from JMP Securities. Your line is now open.

Thanks. Good morning. Thanks for taking my question. I will not volunteer to do any endurance sport.

Most of my questions have been answered. I just wanted to -- I know you got the R&D Day next week, so I'm guessing that Tom is going to be reluctant to give much more identity to the proprietary compound, you'll take it to trials. But if you could, that would be great.

And then in addition to that, I want to talk about the strategy of opening an ex-U. S. CTD as opposed to U.S. IND. Thanks.

I'll -- hey Michael, I'll take the first part of that.

I think -- I know you love reading nature, so your two nature papers -- probably very few companies that have nature co-crystal structures of their active molecules. So I think I'm sure you can kind of figure out some of the agents we're talking about. And Tom, will indeed, you know, plan to give a little bit more detail.

He does have a whole list of the things that he's looking at in terms of selecting the clinical data. I don't know if Thomas, you want to share what we've looked at from we picked it?

Yeah. Of course, there are number of criteria that we've established that will lead to the optimal agent. And I'll discuss those a little bit more next week.

But you know what, we were striving for was really the optimal balance of TRP A1 and V1 channel activation. We of course also looked at duration of action, tolerability and all the pre-existing and internal safety pharmacology and toxicology information that we have on these individual agents. And of course, intellectual property issues played into this as well.

So it's a very comprehensive approach that we took. And I think we're satisfied that we've come up with really the optimal agent.

Okay. And just regarding the ex-U. S. filing?

You know, that's -- it's a really -- we have this really interesting opportunities that are really -- run through Peter Hutt who has no -- wrote most the food and drug law and he's on our board. And we have this really interesting set of opportunities in three geographies. One is areas such as Australia, the other is areas such as Europe, and the third is in the United States.

And you know, I know you know that there might be some others who don't fully understand it, but nocturnal leg cramps has very special regulatory status in the federal register. It's described as a structure function claim, which affords opportunities in the United States.

The other diseases, we think it makes a lot of sense to go ex-U. S. into studies.

Got it. Thanks for taking my questions and we'll see you next week in New York.

Thanks Mike.

Thank you.

(Operator Instructions)

Our next question comes from the line of Chris Howerton from Jefferies. Your line is now open.

Hi, thanks for taking the questions. Just anecdotally, I think I was running on three miles yesterday, so (inaudible).

Yeah, so there is, you know, a lot of good questions so far. And I think, you know, one that's come up from me a lot has been, you know, how do we take into context some of the results that you've seen so far not only with your consumer beverage, but also the single agents in terms of reducing area under the curve? Maybe you could help us translate that to some of the real world parameters that we might be seeing, you know, in athletes but on the clinical side as well. You know, what does several thousands of reduction in AUC units meaning to us in a real basis?

Yeah, Chris, that's an awesome question. Of course I remember well a meeting you and me had with [OLEG] in San Francisco where he has exactly that question and it was a great one then, it was great going around San Francisco and LA with you.

I also feel really bad that you woke up today at 4:00 am looking at our press release. But I feel like I can probably fell asleep right afterwards pretty straightforward.

In any case, you know, we are heartened by the fact that when you look at a cramp, a naturally occurring cramp -- the EMG looks identical to what is caused by an electrically induced cramp. And so we think it's a really great model. People who don't cramp very much normally don't really cramp electrically. Conversely, those who cramp a lot, cramp a lot electrically. And finally when you look at the areas under the curve that we're seeing, electrically they're very similar to what you see with naturally occurring cramps.

And then to put into perspective our results and it's kind of surprising with a neuro-based drug that we see such high responder rates, you know, certainly 50% or more which, you know, as you know, antidepressants, you probably see only a third responders. So that's the first great news.

The second one is that these efficacy endpoints we're seeing and hitting statistical significance in small numbers are driven by the fact that the magnitude of the effect is very significant in a large number of people. So what we're talking about is perhaps a 2/3 reduction of cramp intensity.

And what that means in the real life setting and Marina is in the middle of dozens, you know, you'll see a bunch of next week at Investor Day testimonials, it's pretty clear that that seems to be translating very well in an athletic setting. Of course we're quite interested to see upcoming in the next couple of years how it translates especially with single molecule studies moving forward in a disease setting. But that's a great question, and you know, we have to do an even better job I think to describe why we're so excited about some of these human results.

Okay, yeah, that's great. Thanks.

The -- and I mean, I guess just another quick one, is there -- you know, as you know, I'm still training on the endurance side, but what are the other events between now and Spring that we might be seeing Flex either sponsor, or at least a presence?

So during prelaunch, and we're not sponsoring any events, we won't be doing sponsorship until launch. Kona was an aberration just because of its importance in the endurance space. But we will be sampling various events, smaller, but more importantly we're really trying to seed the product with athletes rather than really focus on events. That's really going to happen at launch. We're going to be very specifically sampling and doing gorilla marketing around key events in LA, Boston and Boulder. So there will be a bunch of IRONMAN, you know, marathons, interesting specific races in biking, and mainly the tri world.

So there will be plenty of events to talk about. And hopefully some of you can participate and watch if you're in the markets.

Cycling is a big sweet spot for us. And it turns out that cramping is huge in cycling, not to mention the other verticals I just mentioned. So there's some very interesting biking opportunities including sentry rods, the Tour de California, et cetera.

Right, that makes sense.

I think we'll at this point cut off the call. And I just wanted to thank everyone for joining us at Flex Pharma as we work to define the impacts of chemical neurostiumulation on reducing cramps and spasms and several important settings. We are excited to be building a leading neuromuscular company with our strong foundation of excellent people and great science.

We hope to see many of you in New York next week. And thank you very much for joining us this morning.

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