Travere Therapeutics Inc (TVTX) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Retrophin second-quarter 2014 financial results conference call.

(Operator Instructions)

As reminder this, this conference call is being recorded. I would now like to turn the conference over to Marc Panoff, Chief Financial Officer. Please begin.

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 that involve risks and uncertainties regarding the operations and future results of Retrophin. I encourage you to review the Company's filings with the Securities and 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, August 12, 2014. The Company undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. With that, I will turn the call over to Martin Shkreli, Chief Executive Officer of Retrophin.

Thank you, Marc. Good morning, everyone, and welcome to the Retrophin's second-quarter 2014 earnings call. I'm also being joined on the phone by Stephen Aselage, President and Chief Operations Officer, and Dr. Alvin Shih, Executive Vice President and Global Head of R&D.

The second quarter marked the continuing transformation of Retrophin from a biotech startup to a global fully integrated pharmaceutical Company. We recorded our first full quarter of revenue and made substantial progress in our pipeline. We added key Executives to our Senior Management team who will work with me to lead and grow Retrophin for years to come. We're excited to continue blossoming into a larger organization by allocating our shareholders capital and to the highest returning pharmaceutical projects, irrespective of modality.

Retrophin was built from a financial perspective and continues to operate through this lens. However, we take a broad approach to financial allocation. Most, quote-unquote, shareholder friendly pharmaceutical companies remove R&D from their focus. We wholly embrace R&D as one of the best ways to deliver financial results to our shareholders and also deliver on our mission statement of advancing innovative treatments for rare, devastating diseases.

We are very pleased with the results of Retrophin's R&D so far and are committed to growing our R&D investment based on the success we've had thus far. I'm particularly proud of our development and prosecution of RE-024 for PKAN, a deadly disease affecting children and young adults worldwide. In a moment, Dr. Alvin Shih, our new Head of R&D, will discuss this further and provide an update.

Retrophin has made two acquisitions this year and both are demonstrating strong results that will fuel our expansion for years to come. Chenodal, our FDA approved FXR agonist product generated its first full quarter of sales for the Company and I am pleased with the results. Chenodal is a valuable drug for the treatment of cerebrotendinous xanthomatosis, or CTX, and may have utility in other indications. We're committed to ensuring that every patient with Chenodal -- that Chenodal could benefit has rapid access this therapy. You'll hear more about Chenodal from Steve.

Thiola is our product for cystinuria. Cystinuria is a severe rare genetic disease which results in chronic kidney stones. Thiola is a tremendous solution for cystinuria but patients are poorly compliant with current therapies. We believe there are many ways we can help them.

Part of Retrophin's innovative approach is to acquire orphaned orphan drugs and supply their communities with the attention and care they need to thrive. When I refer to an orphaned orphan drug I mean a smaller drug that has been essentially abandoned by one of the larger pharmaceutical companies because of its lack of large revenue. These products need a champion and Retrophin is the Company who will provide care and service for patient populations with as few as 50 to 500 patients.

Without financial incentive, the owners of drugs like Chenodal and Thiola generally fail to faithfully manufacture supply for these kinds of markets. They rarely do research and development and generally provide little support. But we believe these patients are no different than from people suffering from hypertension or asthma. Every patient deserves a chance to be healthy and prosperous if great medicines like Thiola and Chenodal are available.

As I mentioned the second quarter also saw the addition of two experienced Executives to Retrophin's Senior team. Steve Aselage has been on our Board of Directors since we went public in 2012 and has a long experience in the orphan drug space, most recently as Chief Business Officer at BioMarin.

Dr. Alvin Shih joined us from Pfizer where he was Chief Operating Officer of the rare disease research unit. I'd like to ask Steve to go through our operating results for Q2 2014 and Alvin to drill down into our pipeline progress. Let's start with Steve.

Thanks, Martin. The acquisition of Manchester Pharmaceuticals by Retrophin closed in Q1 of 2014. And as such, Q2 2014 represents our first full quarter of revenue from Chenodal and Vecamyl. We instituted a price increase on Chenodal in Q1 of 2014. Payer support for the product has continued to be solid and we've seen a small increase in the number of patients on commercial therapies since then.

We believe Chenodal is a valuable drug, and our market research indicates it is used exclusively for the treatment of cerebrotendinous xanthomatosis, or CTX, but may have utility in other indications. CTX is extremely difficult to diagnose with the average age of diagnosis being patients in their mid-30s. Our focus is to improve diagnostic efforts in the US and to ensure that any patient in need of Chenodal has access to the product.

In Q2 we announced the license of Thiola from Mission Pharmacal. As Martin mentioned, Thiola is a potent treatment to avoid stone formation in patients with cystinuria, one of the most common genetic diseases. Thiola supply has been discontinued for eight weeks when we licensed the product, and we have fully restored supply to this market. In Q3 we intend to stabilize the market by working to get patients who discontinued therapy during the product outage back on therapy.

Thiola has traditionally had both poor adherence and compliance. Patients with cystinuria do not physically feel better after taking Thiola and some may discontinue the product prematurely or skip doses for this reason. We have moved Thiola out of retail distribution and into a closed system utilizing specialty pharmacy in order to provide better patient support and improve compliance and adherence.

Thiola will be promoted to urologists and nephrologists with a small 10 person sales team. Besides putting this commercial team in place, we've continued to build out corporate capabilities by adding some very talented people into the Senior Management team and have recently added a Vice President of Human Resources, a Chief Compliance Officer and a General Counsel, all very talented pharmaceutical professionals over the last several months. Those conclude my remarks, I will turn it over to Alvin. Alvin?

Thanks, Steve. Second quarter was a quarter of continued growth for Retrophin R&D. Retrophin R&D is poised to become a leader in rare disease research and developed since we leverage our internal drug discovery capabilities in conjunction with strategic in licensing and M&A to create a broad and sustainable pipeline.

I've begun a systematic and strategic review of the pipeline and I'm pleased to see many bright spots which could potentially transform the lives of patients with clear unmet medical needs. Our pipeline remains focused on rare diseases where we believe the scientific, clinical and regulatory environment support more rapid development of therapeutic candidates.

The two programs anchoring our pipeline are RE-024 and Sparsentan. Let's start with RE-024 which a program we're proud to have developed completely in-house. RE-024 is the potential therapy for the pantothenate kinase-associated neurodegeneration, or PKAN for short. PKAN patients experience progressive neurodegeneration and have a median survival of less than a decade after diagnosis, and there are no approved therapeutic options.

RE-024 has generated significant momentum in the research community and is being made available to physicians worldwide who are interested in conducting physician-initiated research. Dosing of RE-024 has begun on two subjects through physician INDs.

The data we have today were released our 8-K filing and need to be interpreted with caution given that these are not blinded well-controlled studies. But rather investigator initiated research conducted independently on single patients at the discretion of the treating physicians. That said we are encouraged by the early signs of potential benefit for these two patients on therapy.

The first patient on RE-024 remains on therapy at the 11-week mark and has demonstrated sustained improvement from baseline in terms of scores on the unified Parkinson's disease rating scale, as well as a lactate level which was elevated baseline but is now normalized on therapy. The second patient began dosing more recently but has already demonstrated some signs of improvement in UPDRS score at the first post treatment assessment. We're encouraged by these preliminary results and continue discussions with regulatory agency's worldwide to map out the most efficient way to initiate Company-sponsored clinical trials of RE-024.

Next I'd like to discuss Sparsentan. Sparsentan, the only selective Endothelin Antagonist in clinical development is being studied in the DUET clinical trial for focal segmental glomerulosclerosis, or FSGS. DUET is the largest study a pharmaceutical company has ever undertaken for FSGS.

Enrollment in DUET begin in earnest this quarter and we continue to work with leading academic medical centers and investigators to enroll subjects into the DUET study. If DUET continues to progress as expected, we hope to fully enroll a study in Q1 2015. There's substantial excitement around this program for the medical community as well as the FSGS patient community and we look forward to having results to share in the next year.

In addition to these two programs, we have additional pipeline programs which we're advancing through pre clinical studies and which could start clinical studies within the next 12 months. We'll provide further details on these programs as they approach clinical status. That concludes my remarks, I'll now hand it back to Martin.

Thanks, Alvin. 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 quarter's financial highlights. Marc?

Thank you, Martin. I will provide a brief overview of our second-quarter 2014 financial results. Our net product sales for the second quarter 2014 was $5.8 million from the sale of our three products, Chenodal, Thiola and Vecamyl. We expect increasing sequential quarterly sales through year end.

We reported net income of $8.5 million for the quarter ended June 30, 2014. The second-quarter 2014 net income included income of $33 million for the change in fair value of derivative instruments related to warrants issued in connection with our 2013 private placements. The second quarter 2014 net income also included stock-based compensation expense of $5 million. Excluding these accounting treatments and other one time cash items, actual cash flow use from operations for this quarter was $10.1 million.

GAAP research and development expenses increased to $13.7 million for the three months ended June 30, 2014 compared to $0.6 million for the three months ended June 30, 2013. Stock-based compensation accounted for $1.1 million of research and development expenses for the quarter ended June 30, 2014. R&D expense was impacted this quarter by spending associated with supply of drug for RE-024 and Sparsentan programs. We expect R&D expenses to decrease modestly sequentially throughout the year on a quarterly basis.

GAAP selling, general and administrative expenses for the second quarter of 2014 total $11.3 million compared to $4.5 million for the same period of 2013. Excluding non-cash expenses and certain nonrecurring cash expenses, non-GAAP SG&A expenses were $5.7 million. We had approximately $43 million in cash and markable securities as of June 30, 2014 and had a $5 million financing receivable related to the closing of our term loan that was received at the beginning of the third quarter. Martin?

Thanks, Marc. Retrophin will experience strong revenue growth this year and next as we continue to grow our Chenodal patient base and relaunch Thiola. We are reiterating our 2014 revenue guidance of $30 million to $35 million and our 2015 revenue guidance of $60 million to $70 million. All of our other guidance from our Thiola in licensing announcement is reiterated and unchanged as we look forward to reaching profitability by year end.

Our business development opportunities are robust. Retrophin evaluated dozens of opportunities in Q2 and is selectively moving forward with several deals which may potentially be announced this year, some as soon as this quarter. I'm confident that we can continue to add products to our commercial group and more selectively our pipeline.

While we are mostly interested in the profile of products I mentioned earlier, we have also explored some very large acquisitions including deals over $500 million. We are deeply thankful to our shareholders and other financial partners who have given us such strong access to capital.

I should add before closing that during the February 13, 2014 update call to discuss Retrophin's acquisition of Manchester Pharmaceuticals, a question was asked regarding litigation involving Celgene. Our response to that question and the presentation of the PowerPoint slide during that call made reference to improper conduct by generic pharmaceutical company that has attempted to access Celgene's S.T.E.P.S. program. We'd like to clarify that the generic pharmaceutical company that was referenced was not Lannett and is our understanding that Lannett has not engaged in any improper conduct with regard to Celgene or the S.T.E.P.S. program.

Further, we respect and admire Lannett and do not intend to suggest, imply or otherwise stated that Lannett had done anything wrong or improper. We regret any misunderstanding that may have resulted from our comments or the material that was presented during the February 13 call. With that I'll take any questions you may have at this time. Operator?

(Operator Instructions)

Zachary Prensky, Little Bear Investment.

I've got a number here. But starting with Mark Panoff, can you give us some estimate of where you see exiting both the third and fourth quarters in terms of the Company's cash position?

No we're not giving guidance on cash position for this year. Everything -- all guidance has been announced already, Zach.

Okay, fair enough.

So moving on to the cost of goods, is there some way for you to give us an idea as to what the underlying profitability was of the first $5 million-odd of sale of the our Chenodal and how you see the cost of goods being separated between one-time costs for bulk RE-024 and other expenses versus what you were paying for the actual supplies of the drug that was selling?

I think that our gross profits using net sales less cost of goods is appropriate and what we were expecting. I would anticipate that that percentage, the gross margin percentage continue. And there are no one-time cost related to inventory.

There are no one-time costs. Okay, good.

If I can direct a question to Alvin, on the RE-024 scale up of dosing patients through this access program that we have, could you give us some idea as to how many additional patients over the next two quarters we're going to expect to see on this drug, some range?

Yes, that's not a number that we -- that I would feel comfortable taking because at this point it's a physician-initiated effort. And so we respond to requests from physicians who are looking for therapies for their patients who at this point have no other options.

And so we are in a responsive mode and we will do our best to support those efforts from the physicians who want to treat their patients. But it's not something that we are actively out there.

Okay, could you give us a little bit more color us to how the discussions with regulators are going in terms of structuring it on a initial Company-sponsored trial or it's too early to discuss?

I would say those discussions are still ongoing. We are committed to making RE-024 available to physician investigators worldwide and we're in discussions with regulators worldwide to map out the best way to get it into official company trials.

Okay and then lastly, on Sparsentan, when I look at the protocol for the trial it seems to acquire significant amounts of time investment, had patients enrolling up front if I had to guess they're probably spending a day or so in a hospital.

When you look at the enrollment numbers, are you satisfied with how the enrollment is going? Do think there have been some hiccups in certain locations? And do you feel comfortable now given that the enrollment is underway that you're going to -- that this trial is going to get enrolled slowly by Q1?

Absolutely. I stand behind our guidance. I'm quite happy with the enrollment to date so far.

I've run many rare disease clinical trials and I can say that enrollment always takes a while to build up where the site initiations begin. But over time we expect that number to increase and I think we'll be able to our enrollment targets.

Okay. All right, thank you very much, no further questions.

Jacob Ma-Weaver, Cable Car Capital.

I first had a couple of questions on Thiola. Was wondering if you could talk about what the underlying cause of the raw material shortage was and what steps you and Mission are taking to avoid any future supply issue?

Let me ask Steve to take that if you can.

Sure the problem was basically with the API. Mission does the fill finish work themselves and there was never an issue with that. They purchase API from a Japanese provider CMO, and they had not really adequately stockpiled back up API in case there was ever a late delivery. They ran into a late delivery from the Japanese provider that just put them in a position where they could not get product finished in time to keep patients from running out.

It was a shortage that lasted almost two full months. So essentially most of the patients in the United States ran out of product somewhere during that time period.

We've worked with Mission now given them a forecast that allows them to stock in additional API from whatever they had done before and also have fronted them support to be able to put in back up API to bring that to the states so that we never get into that situation again.

Okay, great. And then what exactly do you need to do in terms of approval, studies, manufacturing changes or the like before you can actually make that hard switch to the new (technical difficulty)?

So, this is Martin, I'm not sure I fully understand your question. But the API supplier we have is qualified and -- fully qualified. So it's a matter for us of ordering more supply which we've done.

I think our goal is to have for all of our drugs at least two years of API on hand at all times. And in terms of a back up API solution, I think it's probably not appropriate for this call to go through too many details.

No, sorry I was a bit unclear. I understand the API issue now, but in order to make the switch to the new dosages and the expenditure lease format that you've talked about, I'm wondering what additional steps you need to take?

Oh yes, great question.

So FXR, again I think it's somewhat premature to talk about the XR. There's a lot of work going on behind the scenes here to work on the lifecycle management. Thiola, not just with an XR but with other approaches.

And most importantly as you know, the lifecycle management is really intended for patient compliance. Thiola comes in a very inconvenient 100 mg format with patients taking as many as 10, 15 pills in some cases a day. So we're working hard on everything you would expect we would be to moving the product to a more convenient format, as well as hopefully enhancing some of our intellectual property.

Great. And one last one on Thiola, if I may, I believe on the initial call you called it the only approved Thiopurine internationally. I was wondering if you could talk a bit about whether there will be an international opportunity and also if [Castamere], I believe, competes with the drug?

Yes, so you make a very good point. There's some spotty availability of Thiopurine internationally, which may preclude our entrance similar to Chenodal in certain international markets. So I would, to your point, be somewhat cautious about the international opportunity for both Thiopurine and Chenodal.

Having said that, we remain opportunistic and I look at those international markets as potential upside but would caution against a -- expecting a lot of international revenue from Thiola. Certainly when we give guidance, we didn't include any international revenue for either of our products.

Yes, I would agree with Martin and maybe if I can add one thing is the Mission folks were very accommodating and they have added Canada to the agreement. So we do have rights for Thiola in Canada, as well as the US. And we are currently shipping some product into Canada, it's going to be very minimal compared to the US opportunity, but there is a smidgen of international utilization right now.

Great. Before I go, if you don't mind one last big picture question and then I'll let someone else ask a few more.

I wonder -- I imagine comparisons to Questcor must really irk at times and I'm just wondering if you could comment a bit on your philosophy when it comes to price increases? In particular how you came to the number you did for Chenodal, your thoughts on co-payment [systems] and the like.

Yes, so I won't comment on comparisons to any other companies. We are a very individualistic Company with a very clear compass for our actions. And in terms of pricing, the way we look at it and I think you really have to put yourself in the shoes of these patients. We do a lot of things before thinking about a price increase.

We actually -- one of the standard practices here at Retrophin is to ask permission from the patient's physicians, patient groups, everyone, every counter party we can talk to about our -- any repricing action that we take. And what we're trying to do is get buy-in from these neglected communities.

If you have a disease like cerebrotendinous xanthomatosis, life and the condition of that community had been pretty bleak, or at least we think so, prior to our entrance. And we think by entering this community and caring for it with enhanced financial support that's only possible by making the product viable financially, is something that we're proud of. And if there is extra profit, Retrophin, unlike maybe the company you mentioned and some other ones, we are aggressively investing in NCEs for R&D.

As you know RE-024 was invented from scratch at Retrophin by Retrophin employees and scientists. And we've got several more products just like that that we haven't disclosed. So we're a full-fledged R&D Company that is really attempting to create brand new drugs for people with very severe often lethal and often pediatric diseases. So I think the comparison is not well-suited.

And if you ask the patients themselves you'll find that, in fact I'd ask the patient advocacy community, you find that they're very supportive of what we're doing because, for the first time, we can sponsor conferences on these diseases like cystinuria or cerebrotendinous xanthomatosis which wouldn't have been possible. In fact if you look at the companies that owned them prior to us, there was no money to make. There's no money left over to invest in them.

So by raising the price, we can actually afford to make sure that no patient gets left behind and that more importantly in the case of something like CTX that these folks can actually get diagnosed in time to get saved by a treatment. And I think that's not only a tremendous financial opportunity, obviously, but also just an ethical and humanitarian responsibility that we really enjoy.

And then obviously with a full pipeline of great drugs for rare diseases we feel great about having excess cash flow to support those. I appreciate the question very much.

Great, thank you for that. And that's all for me.

(Operator Instructions)

Zachary Prensky, Little Bear Investment.

Going off of what you said, Martin, can you comment a little bit about how you feel on, although these are early days, about identifying additional CTX patients and how your initial efforts at having people do these retrospective analysis of patients who (inaudible) cataract, I believe we discussed that on the Q1 call.

How is that going and do you feel that you need to put more effort or change of direction or you're comfortable with the direction of the Company taking in terms of identifying new patients?

I'm going to let Steve answer the question, but I will say before I turn it over that we're at all-time high for Chenodal patients. And we've got patients in the pipeline. More patients are on Chenodal than have ever been on the product in the history of the product. And that's not a modest increase, it's a substantial increase from the beginning of the year.

And I do think our -- the actions we're taking will continue to add patients. And if you listen carefully to Mark's comments, we do plan on sequential revenue increases, not only for the [whole] Company revenue but also for Chenodal. But with that I'll let Steve get a little more granular in terms of the actions we're taking and his comfort level.

Yes, I think it's worth making sure and I think you know this, but making sure that you understand that Chenodal is being used 100% off label right now. And in that situation we have no ability to do any type of promotional activity. There's no sales force behind Chenodal, no marketing efforts behind Chenodal.

What we can and are doing is trying to create greater disease awareness. And we believe that greater awareness and earlier diagnosis will lead to increased patients being identified at a younger age when therapy can have a more meaningful impact.

The whole concept of patients with severe neurodegenerative disease not being diagnosed until they're in their mid-30s, until there's significant neurological damage already is done, just doesn't make sense in this day and age. So we're hopeful that through proactive education on the medical side, that we can encourage people to do a better job with diagnosis. If that happens, I think there'll be some natural fallout that will benefit the product on the revenue side.

But again we can't promote the product and have no sales and marketing effort behind it, which is why we're being very conservative with what we forecast in terms of potential additional revenues.

Okay. I guess I was hoping to hear some more granular detail on the initial thought, which I understood was going back to patients in their mid teens who had undergone cataract surgery, and having those patients retrospectively screened for the genetic markers of the illness.

Can you give us any comments on how that's going and whether or not you think that's the best use of the Company's resources?

We've had some significant discussions with high-volume ophthalmologists who do cataract surgery. Most of them have not been aware of CTX at all. They've been very candid about saying they just weren't familiar.

They have been intrigued by the concept of them being in a position to be really in a position of first to diagnose. They are not potential treaters, that's been made clear to us by the group.

But they are interested in going back and look at their patients. We have gotten a proposal from one of the centers do a multi-center retroactive study of going back and pulling patients with -- pediatric patients that have had bilateral cataract surgery and then doing testing. We're likely to be supportive of that study and we'll look forward to seeing some results from that.

Okay, and then lastly --

That's really as far as I can go as far as granularity.

No, no, that's fair. It sounds like it's best use of the Company's resources from my little perch, but obviously the guys know better (inaudible) pushing it forward and that's very heartening to hear.

You've underscored a number of times that we're essentially fighting this fight with our hands tied behind our back given that the label does not indicate it for this illness. Can you give us finally some comments on how you see a path forward to getting the FDA to allow it to add that to the label, what sort of study or what sort of filing would need to be done to do that?

Yes, so thanks for the question and I'll ask Alvin to comment if he has anything to add to my comments.

But we are pursuing just like with Thiola a potential new format for Chenodal. Chenodal dose three times a day. As you may know many drugs from the initial era drug discovery were dosed three times a day as convention. No one is really sure if Chenodal should be dosed three times a day or not. And we see that as a potential opportunity to maybe move the product to a once a day if it's possible through a controlled release or some other mechanism.

And while we do that, we could potentially do a clinical trial to get it on label. But those -- just like the question we got on Thiola in terms of getting to another potential formulation, those projects are ongoing. And I would expect updates over the course of years not -- or quarters not certainly one or two quarters.

So they're long-term projects that require review cycles and things like that and guidance from FDA and all kinds of advice that takes time. And some of those may be on a global effort as well. So there could be, and for obvious reasons I don't think we want to tip our hand too hard in terms of what we're doing. But we're very excited about it.

And then with respect to Chenodal, I just want to add one more comment to your question which was related to the CTX patients. I think Chenodal to my comments earlier there's a big open -- wide open space for Chenodal. Is the world's only FDA approved FXR agonist.

There's obviously could be another one coming but the FXR agonist space seems to be exploding. And I think Chenodal will have a very permanent fixture in that space.

So while everyone here is focused on CTX, there are some other diseases we're focused on and excited about and they're not the usual suspects. So I don't know Alvin, if you wanted to add anything?

No I think that's right. The regulatory strategy for Chenodal is part of the broader integrated asset strategy that we're moving forward and always in discussions with the FDA who have shown themselves to be good partners on this asset.

So those discussions continue and we'll provide more guidance as we get clarity.

Thank you very much.

Thanks, Operator. With that we'll conclude the call.

I wanted to mention we've appointed a new Head of Investor Relations, Chris Cline, and look forward to everyone meeting him in the ensuing quarter and thanks again for your time.

Ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day.