Travere Therapeutics Inc (TVTX) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Retrophin First Quarter 2014 Financial Results conference call.

At this time all participants are in listen-only mode. Later we'll conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this conference is being recorded.

I would now turn the call over to Marc Panoff, chief financial officer of Retrophin. Please go ahead.

Thank you. Good morning, everyone. Thank you for participating in today's call. Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements, and involve risks and uncertainties regarding the operations and future results of Retrophin.

I encourage you to review the Company's filings with the Securities & Exchange Commission, which identify specific risk factors that may cause actual results or events to materially differ from those described in the forward-looking statements.

The content of this conference call contains time-sensitive information, that is accurate only as of today's date, May 14th, 2014. The Company undertakes no obligation to revise or update any statements to reflect events of circumstances after the date of this conference call.

With that, I will turn the call over to Martin Shkreli, chief executive officer of Retrophin. Martin?

Thank you, Marc, and thanks, everyone, for joining us this morning. We are pleased with the progress Retrophin has made during the first quarter. We made two major accomplishments in the quarter, one, the acquisition of Manchester Pharmaceuticals, and two, the advancement of our pipeline drugs for rare and severe diseases.

Manchester Pharmaceuticals is a critical acquisition for Retrophin, which brought us our first two marketed products, Chenodal and Vecamyl. These drugs will propel Retrophin to long term sustained profitability.

Our pipeline is advancing rapidly. I am pleased with the progress we've made, notwithstanding periodic delays in our progress. I am not satisfied with these delays, and have taken steps to address their causes, so we can deliver on your, our share owners, expectations.

We closed the acquisition of Manchester at the very end of Q1, by paying Manchester $29.5 million, and giving its partners a seller note for $33 million, in three equal installments of $11 million, due at the end of Q2, Q3, and Q4 of this year.

We were thrilled to take responsibility for Chenodal and Vecamyl, and believe we can change the lives of many undiagnosed patients. I'll spend most of my time discussing Chenodal. Chenodal, which is our chenodeoxycholic acid, or simply CDCA, is a synthetic bile acid which acts as replacement therapy, and is a standard of care for cerebrotendinous xanthomatosis, or CTX, a rare and difficult to diagnose bile acid disorder, that can result in progressive neurodegeneration if left untreated.

By supplying CDCA in CTX, excess cholestinol synthesis, the main abnormal feature of CTX, is potently down regulated to normal levels. CTX is a very rare disease, and Retrophin only has a few dozen patients on therapy.

CTX is also a tragic disease, because almost all CTX patients are diagnosed very late in the disease process, at which point they've generally suffered from mental retardation and cognitive impairment.

Retrophin's mission for Chenodal is to educate the relevant healthcare professionals about CTX. We hope that of the estimated 1,000 patients with CTX, we can find all of them, and put them on Chenodal before their symptoms appear. Indeed, if patients are given CDCA early in the disease process, CDCA can generally halt the progress of CTX, and give patients a normal life.

We recently took a price increase on Chenodal, and I am pleased to report that the market has accepted our increase with little to no difficulty in raising price. By raising the price of Chenodal, we can now afford to field an educational effort, which will identify more patients earlier in the disease process, and hopefully save more lives, and more costs for insurers and their customers.

The price increase also allows for continued research into CTX, the development of a once a day Chenodal, which we intend to replace the current three times a day Chenodal with, our commitment to support research (inaudible) screening, enhance patient acts, assistance, and access, and foreign access to Chenodal.

At the prior price, none of these achievements could be possible. The CTX community supports our price increase, and we're gratified to be able to reinvest in this community. The biggest fear for the CTX community is that one day a drug company who owns Chenodal will discontinue it for lack of a business opportunity.

Our promise to these patients is a high quality medicine that they can depend on for decades to come. Only a handful of companies can commit to caring for a few dozen patients with such vigilance for a relatively small business opportunity.

Until now, CTX has been a largely ignored disease, and we look forward to the day when all patients are diagnosed and treated early. Chenodal is currently prescribed for CTX off label, and we have also begun the process to seek FDA approval for that indication.

We have orphan status for Chenodal and CTX, and look forward to orphan exclusivity. Finding CTX patients will not be an easy or straightforward task, however our early efforts have been promising.

We are focused on pediatric ophthalmologists, and specifically pediatric cataract surgeons. Almost all patients with CTX have bilateral juvenile cataracts, a highly unusual symptom that is nearly obligatory in a CTX diagnosis.

We've begun educating cataract surgeons, and feel excited about the opportunity to change lives by diagnosing this disease decades earlier than it is currently. The complete lack of familiarity with CTX by these physicians is not surprising.

We plan on conducting a retrospective and prospective registry with these surgeons, and associated healthcare practitioners, to make sure any adolescent patients with cataract surgery in the last five years are tested for CTX, and all patients are tested going forward.

Last thing I'll say on Chenodal, is we're excited that Chenodal appears to be the standard of care in several other inborn errors of bile acid deficiency. Diseases such as 3 beta HSD deficiency, and several other inborn errors of bile acid metabolism, are so rare that they don't have official names yet.

However, there are as many as 500 patients in the US with each of these illnesses. Many of these diseases are similar to CTX, they affect enzymes in the same pathways of bile acid metabolism.

We're all familiar with the potential use of FXR agonists like Chenodal in primary biliary cirrhosis, and other indications. We have found a few orphan diseases that Chenodal may be useful in, that have not been previously contemplated.

There's a lot of work to do with Chenodal, and we're very excited by revenue momentum, and look forward to fully exploring this product commercially and clinically in the years to come.

Vecamyl, or mecamylamine, is a second, sometimes forgotten product in our marketed assets portfolio. Vecamyl is experiencing strong growth. We are aware of off-label use of Vecamyl despite its labeled indication of hypertension, for the use of rage disorders associated with autism and Tourette's.

The mechanism of action of Vecamyl as a nicotinic receptor antagonist, suggested as plausible by Vecamyl, could have an impact on psychiatric diseases. However, we remain cautious about this possibility given the lack of available clinical data, we strongly suggest that physicians do not prescribe Vecamyl without fully understanding that any treatment effect is speculative, and is not supported by controlled or validated data.

We are reaching out to physicians who are increasingly prescribing Vecamyl to gain a better understanding of how it is used. We are interested in potentially conducting a small investigator-led and sponsored trial, which will validate or refute their hypotheses that the product is having a treatment effect in their patients.

The strength of the product portfolio is leading us to increase guidance the second time since we announced our acquisition of Manchester. While our guidance increased today is modest, I view our guidance as conservative, and the increase is meant to indicate our directional confidence.

Our first full quarter of revenue will be Q2, 2014. We expect 2014 total revenues to be between $20-22 million, up $1 million from $19-21 million. We expect 2015 total revenues to be between $36-41 million, up $1 million from $35-40 million.

A word on expenses, Retrophin has [asked] the majority of its free cash flows back into its pipeline. We project to be cash flow break even, or cash flow positive, starting in Q2 2014, although normal quarter to quarter fluctuations and expenses in revenue may make predicting the results of any one quarter difficult.

In 2015, we expect to be solidly profitable, even with a full R&D investment. It is important for our investors to understand how we view our business. We view R&D costs as a one time opportunistic high risk investment opportunity.

And if our R&D returns prove to be less than what we expected, we will stop spending on R&D, and transition into a specialty pharmaceutical company. If our R&D investments are better than we expect, we will probably invest further in our business.

This makes valuing our company on our earnings difficult. We see fit to capitalize our R&D costs, and therefore try to look at our underlying earnings potential as a metric for our growth. We define earnings potential as annual EBITDA adjusted for one-time non-recurring costs, including R&D.

Our goal is to increase our long-term earnings potential, which will resemble our recurring earnings if we shut down or sold our business. We believe our current EBITDA earnings potential is approximately $1.00 per share.

Let's turn to our research and development pipeline. RE-024 is our investigational agent for pantothenate kinase-associated neurodegeneration, or PKAN. PKAN is a fatal catastrophic disease for which there is no treatment.

We are focused on developing a treatment for PKAN which will transform the lives of these patients. We announced on Monday that a physician outside the US gained approval from the country's local regulatory body, to administer our RE-024 to a PKAN patient under a compassionate use program.

Dosing of this patient is scheduled to begin this week. We expect that other physicians may soon receive permission to begin dosing patients. The protocol for all compassionate use studies will be the same. The protocol calls for a dose ascending period, followed by a stable dose period for some time.

While the treatment endpoints will officially be measured at day 7 and day 28, the study has no definite end date, and the compassionate use protocol may be -- may continue if requested. We will follow all physician-initiated studies closely.

Our disclosure strategy for RE-024 is complex. We will have real time access to patient data. We plan on releasing this data as it becomes available to us. While this matter of disclosure is unorthodox, in this modern era of ultra-orphan drugs, our shareholders will likely draw conclusions based on very small patient samples, as we've seen with other similar compounds in our industry.

The method of disclosure will most likely be in AK filings, or press releases, where we may release the raw data or aggregate data from the patients being tested. We feel that where we are seeing a trend or can make a more definitive conclusion, we'll issue a press release or hold a conference call.

Regarding the FDA process to file an IND for RE-024, needless to say, this has become a lower priority given the ex-US initiation of patient dosing. However, we have completed our pivotal toxicology studies, and have observed no discernable toxicity in mice, rats, or primates at this time.

We expect to file company-sponsored IND in the next two months, followed shortly by a phase 1 clinical trial. We met with the FDA recently, and they shared our enthusiasm and interest in advancing RE-024 as rapidly as possible into human studies in the United States.

Turning to Sparsentan, our selective endothelin receptor antagonist for the treatment of focal segmental glomerulosclerosis, or FSGS, we are enrolling a pivotal -- potentially pivotal phase 2, 3 trial called DUET. DUET is the largest ever asset FSGS clinical trial intended to register the product for this indication.

We initiated enrollment last December, and continue to add trial sites across the country. Investigators are excited about Sparsentan, and this trial is enrolling briskly. We expect to reach our goal of 100 patients enrolled in the study by the end of the calendar year, and the first quarter of next year.

Endothelin receptor antagonism has gained tremendous support and an interest in research. I encourage you to read the recent published literature which has been coming at an accelerated pace. FSGS is one of the most aggressive kidney diseases, and there is no FDA-approved treatment.

FDA has shown great latitude in our discussions, and a great appreciation of our regulatory strategy, and the context of the severity of this disease. I strongly believe that the DUET study is likely to allow registration of Sparsentan if its primary endpoint is met, and we commit to a post-approval outcome study.

Commercially, FSGS is a large market, with as many as 50,000 patients in the United States alone. These patients are at an extremely high probability of losing their kidneys. Our research suggests that the FSGS community would support a six-figure price for Sparsentan.

Even a small number of those patients treated with Sparsentan would result in a major commercial opportunity. Also keep in mind that as the only truly selective endothelin receptor antagonist with no affinity whatsoever for the endothelin B receptor, Sparsentan may have unique pharmacological advantages over [Astrosentan], our competitor drug from [ABVE], which is being studied in a large [Alcolm's] trial for diabetic nephropathy.

Endothelin receptor antagonism has not been fully interrogated. Even though the PAH market is a multi-billion dollar market for ERAs, there has never been a very broad effort to interrogate endothelin receptor antagonists in a variety of diseases.

We are choosing further indications, both kidney- and non-kidney-related, to research Sparsentan in. We expect to start another important clinical trial for Sparsentan at the end of the year, or early next year. I remain extremely enthusiastic about Sparsentan and encourage you to consider it carefully.

RE-034 is our synthetic ACTH program. We are in the process of scaling up manufacturing capacity for our clinical trial program, which is set to be in later this year. We've made significant progress in the technical challenges of creating a synthetic ACTH depot in record time.

Our guidance for starting two pivotal trials for of RE-034 in the third quarter, for infantile spasms and nephrotic syndrome are unchanged. Investigator enthusiasm for both trials is palpable. Physicians are looking for a choice in ACTH therapy. We have seen significant interest in our synthetic alternative.

Turning to Syntocinon, the formerly FDA-approved intra-nasal oxytocin product, we acquired from Novartis recently, we are in the process of working with FDA to restore the product back to an active marketing status.

The details on protocol of restoring a product like Syntocinon back to the market after a 15-year absence, are quite esoteric and uncommon. We have a meeting with the FDA scheduled in late May, and we will learn more about the next steps needed to reintroduce the product.

We'll provide an update at that time. We feel confident that no new clinical trials will be required to reapprove Syntocinon. We also feel confident that the product will perform well commercially in the lactation market.

We feel incrementally less confident on the exact FDA path forward, but even if we are delayed in the actual launch of Syntocinon, it will likely be enough of a near term event to drive value for earnings per share in the next year or two.

We paid $5 million to acquire this asset, and still feel that this will be a very worthwhile investment. Remain excited about the opportunities for development of this drug in psychiatry, and encourage you to stay tuned while we initiate and report on those programs.

Turning to the rest of our pipeline, we expect to unveil a new R&D candidate from our prolific drug discovery effort. RE-030, 036, an 039, are brand new molecular entities that are drug candidates, internally discovered by Retrophin for three different ultra-orphan catastrophic diseases.

These candidates are early, but it is important for our investors to know we are committed to discovery research, and believe large returns on invested capital can be generated by projects such as these, and RE-024 for PKAN.

Regarding our business development pipeline, we are in late stage discussions with several parties to acquire commercial assets. While there can be no absolute assurances, we expect to announce a deal to acquire commercial asset within the next 30 days.

Our capital position is good. We are not planning a dilutive stock offering, as we are a break even or slightly cash flow positive company. In addition to our cash on hand, we own treasury stock valued at $4.5 million, which we can sell, or borrow against.

We prefer a non-dilutive debt offering to meet our obligations to Manchester, which we view as a simple and easy to execute transaction. We find an attractive acquisition candidate, we may sell equity to support revenue and earnings growth that will overcome any dilution.

Our shareholders are some of the most supportive I've seen in my time. We thank you for your confidence in our management team. Speaking of which, we plan on expanding our management team in the near future, to accommodate our growth.

Three years ago, we were a two-person company with no assets and no cash. We've experienced tremendous growth, but have hit our share of bumps in the road that go hand in hand with success. We acknowledge errors in R&D planning, and our new hires and senior management are designed to limit those errors going forward.

I'm sure as we continue to grow the Company over the next several years, we will do a lot of things right, and some things wrong as well. However, we are confident that over the long term, our mission and vision will serve our shareholders well.

With that, I'm going to turn it over to Retrophin's chief financial officer, Marc Panoff, who will share with you some of last year's -- last quarter's financial highlights. Marc?

Thank you, Martin. I will provide a brief overview of our first quarter 2014 financial results. Our net loss for the three months ended March 31st, 2014 was $70.6 million. The first quarter 2014 net loss included a charge of $53.6 million for the change in fair value of derivative instruments related to warrants issued in connection with our 2013 private placements.

The first quarter 2014 net loss also included stock-based compensation expense of $5 million. Research and development expenses increased to $6.9 million for the three months ended March 31st, 2014, compared to $200,000 for the three months ended March 31st 2013.

The increase in research and development expenses was primarily due to a $4.4 million increase in external spend on our pipeline products, as well as $1.5 million increase in head count related expenses.

Selling, general, and administrative expenses for the quarter was $10.1 million, compared to $1.7 million for the three months ended March 31st, 2013. This increase was primarily due to a $4.4 million increase in stock-based compensation, as well as a $2.6 million in professional fees and cash-based compensation. We had approximately $5 million in cash and marketable securities as of March 31st, 2014. Martin?

Thanks, Marc. I'll turn over the call to the operator for questions.

Thank you. (Operator Instructions).

Our first question comes from Zachary Prensky, with Little Bear Investments. Your line is open.

Thank you. I've got two questions. First on CDCA, since you kicked off the price increase, have you seen the other supplier, the product outside the United States, make any moves of increasing price there? And does that give you any idea as to what other countries outside the US you might wish to compete with them? I know in the past you've mentioned Brazil. Could you give us a little color on that?

Sure. So we don't know of any actions from our competitor. We have no competitor in the United States. And given we are aggressively pursuing FDA approval in the United States, for which we think we'll receive orphan exclusivity, we think it's unlikely that we'll have any competition in the United States, especially given there's a very complex distribution system and patient assistance program that goes with this drug. So I feel very good about the United States picture.

Turning to ex-US, I do think we can grow revenue ex-US With respect to each individual country, I won't comment on that, but there's definitely pockets of countries where our product is desperately needed, and we currently do provide some product to foreign countries at the moment.

Our competitor's supply chain is known to be relatively inadequate. Many physicians complain about access to our competitor's drug. Having said that, I think the main business is going to be generated in the US, and I think you should look at the ex-US as a simply icing on the cake, or upside, if we can achieve growth there.

Okay, and just my second question, you gave us a little tantalizing idea as to how you intend to find more patients, that you're looking at a retrospective analysis of essentially teenagers who had cataract surgery in the last five years (inaudible).

Do you have an idea as to how long that process is going to take you, (inaudible) of the complexity, and obviously there's going to be a cost involved, so I assume that you've crunched those numbers and obviously making a lot of sense to do given the revenue? Can you give us a little more clarity as to your thoughts on timing and what that study would -- well, study does for this operational thing would look like?

Sure, Zach. So the registry is fairly easy to do, and not very expensive, and it focuses on cataract surgeons. And it really is a retrospective case review, as you mentioned, of any patient who's under a certain age, that's had bilateral cataracts, we'd like to get that patient tested for CTX, because there's a reasonably enriched population there with a good chance of having CTX without knowing it.

And unfortunately, due to the progressive neurological decline, which is not readily diagnosed into CTX, and that could be stopped if Chenodal were introduced, you know, it behooves the physician, the patient, everyone, to do this.

So we've received a lot of excitement from cataract surgeons who want to do this, and some of them have started. So the program is underway, and obviously what we'd like to do is create a standard of care whereby any younger person who has cataract surgery is tested.

And the test is relatively simple. A cholestinol test can be done very, very cheaply, and so the cost is not going to be expensive. In fact we probably break even if we just found one patient at all.

So given the small number of folks who do cataract surgeries, we've been able to actually speak to most of them already, so we're underway in that regard, and we're very excited about that being one of many different programs to define more patients, including for instance, in the long term, one solution would be a [euborn straining] test, which we're also working on.

So there's a number of ways to grow the number of patients on Chenodal, and I mentioned on our call a few minutes ago, the possibility for other bile acid deficiencies to be treated with Chenodal, such as 3B to HSD, or CDCA as the current standard of care.

So there's a lot of avenues for growth here, and I just would remind you that our long term guidance for the product of potential peak sales, is 100, $250 million, and I think that's very much achievable.

Okay, I have another question, but I'll hop back in the queue, and if there's time, I would like to --

You can go ahead.

Are you sure? Okay, so spilling over to the RE-024 disclosure, if I understand you correctly, you're going to be getting daily real time data from these overseas patients, and you intend to file an AK with the technical data back.

Can you give us some idea as to what kind of technical data you'll be accumulating? Is this a measurement of [dystonia]? Can you give us some idea as to what we can expect to find in the first AK that gets filed?

Sure. So we'll be providing the dystonia data, as you mentioned, and obviously our thinking on this concept is evolving, so I'd just take a step back, and remind you of that. We may -- we may do -- this is our current thinking, and that's all it is.

We may change our minds on how we disclose this data, but in general I think it would be beneficial for investors to see the changes in dystonia if good, bad, or neutral, as they become available.

We still have to, again, refine our thinking on do we want to do that a patient at a time, or three patients at a time, or what exactly, but I think it's the best method as opposed to waiting for an academic conference, a medical conference, something like that, to present the data.

And then of course we will still present the data at medical conferences, but given the Company will be in possession of the data, we think it's right for investors to know right away. And I think in addition to the dystonia scales, we'll also be measuring other performance metrics of the patients, including walk distance and walk times, and other kind of metrics that I think may be useful.

But the primary manifestation of this disease, as you know, is dystonia, so I think we'll be fixated on that data.

Okay, if I can just get a 10 second on my soapbox, I really applaud this innovative idea, and I think it really gets rid of a lot of the Twitter and Facebook stuff of people hounding patients, and that's always troubled me as this product has moved forward. So (inaudible), I know it's a work in progress, but just from my interest, I think it's a great idea, and I think you should stick with it.

The second and last follow up question, on the cash position and funding, if I understood you correctly, I just want to get a little clarification, I think what you're trying to say is in terms of the monies that are owed Manchester, you see that the Company has good access to debt capital.

Which you would do independently, given that there's a time element, you owe the payment at the end of the quarter, to any potential equity funding, to acquire a revenue-producing product, but at the same time, you've said that you don't wish to see a diluted offering at this current stock price.

So how do you sort of reconcile the two, meaning do you look at the potential earnings from acquiring a new revenue-producing product, and you swallow your pride and say look, at $12 I'm willing to sell it here, to buy that product?

Or are you saying we would acquire that revenue-producing product and fund it with equity, but not at this price, and we'll wait until the stock is at a level that we feel comfortable? Can you sort of reconcile those two, how much you make?

Sure. So I'll just say that if there's an attractive acquisition opportunity that we can fund with debt, we obviously would do it in a heartbeat. If there's an acquisition opportunity that we fund with debt and equity, and that acquisition opportunity was attractive enough to overcome the dilutive parts of the acquisition, we would also do it in a heartbeat.

So I think our goal is to try to create value, net value. Obviously any time you sell equity, you're diluting the pie for everyone, but at the same time, if you're adding enough value to overcome that dilution, for instance if you're diluting the Company by 10%, but you add -- grow the value of the Company by 50%, that's something I think our shareholders would always endorse.

So I hope that gives you some color. The other thing I'd say is that our company's position is very, very collateralizable and fundable, so moving the Manchester obligations to a different party with a longer date and maturity would, I think, be relatively trivial.

And then finally, as I mentioned, we are in discussions and negotiations, and expect that we will announce something in the next 30 days. So I would stay tuned for that. We have several transactions in mind right now, and I think that in conjunction with those transactions, depending on the transaction, there may be a debt offering and/or an equity and debt offering.

But again, I think these -- as you can tell from our comments, we're very, very dilution-sensitive, we'll never raise capital needlessly, and I think that by marrying any capital raise with an attractive acquisition that everyone agrees creates a bigger pie for the Company, then I think everyone will be happy.

Okay, and if I could just turn to Marc just for my final question, the cash position in this release is $5 million, plus a little [extra] in terms of prepaid expenses. Martin mentioned that there's some treasury stock, and Martin also mentioned that it's basically cash flow break even.

Marc, can you just give us a little comfort, I guess as a shareholder, I'm a little uncomfortable, and I want to hear you sort of hold my hand here. A company as complex as Retrophin is just daily working capital needs, and it just seems to my untrained eye that $5 million is a tad too tight. Can you just give us some comfort that you're comfortable with the current cash position, and how you feel about that, given just the big bill that come in?

I am comfortable with our current cash position. I don't think it's prudent for me to elaborate any further on that. I think that we have a plan in place to be able to fund our operations through the sale of our product, and through other potential means going forward.

Okay. Thanks, guys. Great job, and really, really kudos to getting the RE-024 out especially. That's the best news I've heard. Thank you.

Thank you.

(Operator Instructions). I am showing no further questions at this time, I will now turn the call back over to management for closing remarks.

Great. Thank you very, very much for your time and support. We appreciate the steadfast support from our shareholders, and we're working hard to grow value for the Company. We'll see you on the next earnings call.

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