Travere Therapeutics Inc (TVTX) 2016 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Retrophin first-quarter 2016 financial results corporate update conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Chris Cline, Senior Director of Investor Relations. Mr. Cline, you may begin.

Thanks, Matt. Good afternoon, everyone, and thank you for joining Retrophin's first quarter 2016 financial results and corporate update call. With me today are Steve Aselage, Chief Executive Officer; Laura Clague, Chief Financial Officer; and Dr. Alvin Shih, EVP and Global Head of R&D.

Before we begin I have 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 identifies 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 3, 2016 and the Company undertakes no obligation to revise or update any statement to reflect events or circumstances after the date of this conference call. With that, I'll turn the call over to Steve.

Thanks, Chris. Good afternoon, everyone. Thank you for joining us to talk about our progress [this third] 2016. When we did our year-end call a couple months back we talked about the need to focus on execution and reaching our key clinical milestones that could make 2016 a transformational year for Retrophin. In this regard I'm very happy with the advancement made in the first quarter specifically with the completion of enrollment in the Phase 2 DUET study of sparsentan for the treatment of FSGS.

As a result of reaching this goal, we've remained on track to have top-line data available to report in the third quarter. Between now and then we will be working with thought leaders in the FSGS community to put together an in-depth package supporting proteinuria reduction as an improvable endpoint. This groundwork will put us in position to make a strong case with the FDA for accelerated approval should the Duet data read out as we expect with a robust and clinically meaningful reduction in proteinuria.

Also encouraging for our pipeline in the quarter were at new data for RE-024 presented at the ACMG meeting in March. Our teams did an excellent job of putting together an array of data that reinforce the need to aggressively pursue clinical development of RE-024 for PKAN. The data from four posters presented at the conference provided foundational evidence and promising insights into the profile of the drug all of which reaffirm our belief that RE-024 could become the first approved treatment for people suffering from PKAN.

We also look forward to the release of new data on two more PKAN patients receiving RE-024 under physician initiated treatment at the upcoming MDS conference in Berlin at the end of June. The next key clinical milestone for RE-024 will be the initiation of the planned efficacy trial in PKAN patients. Progress continues, and we are in position to start enrolling for the trial in the second half of this year.

Turning to our operational performance for the first quarter, we generated $29 million in net product sales and continue to manage costs effectively. The $29 million in net product sales in the first quarter represents a 67% increase over the same period last year. All three products had encouraging growth in new patient starts during the quarter.

The new marketing programs rolled out at the end of January are having a positive impact, and underlying trends exiting the quarter are strong. We've said in the past that patient adds with orphan drugs can be unpredictable, so I am very happy that for the first time I can say we are seeing consistent new patient additions to all three products.

We experienced typical beginning of the year shifts in insurance coverage that caused some temporary prescriptions interruptions early in the quarter. We also saw larger gross to net discount due to the higher commercial and Part D co-pay assistance as patients' insurance deductibles reset at the beginning of year. We expect both of these factors to ease for the balance of the year.

Additionally we saw minor increase in the Medicaid percentage in our payer mix. Specifically regarding Thiola new patient additions accelerated in the first quarter, and demand remains strong.

As a result of our continuing efforts to support Thiola and its accessibility, the medication was removed from the FDA's drug shortage list last month. This was a direct result of our further investment in securing adequate drug supply to meet ongoing demand.

Thiola had been added to the shortage list due to supply issues prior to our acquisition of distribution rights in late 2014. Our development work on a more patient friendly formulation of Thiola continues, and we will update you when we get closer to making it available.

Lastly on Thiola I know of many of you saw an announcement yesterday regarding a compounded formulation being developed. We did not view these products as a significant threat to Thiola. As we have said previously compounded versions of our FDA approved medication are not valid substitutes for Thiola which has been deemed safe and effective by the agency.

As the FDA has said itself on numerous occasions and recently reiterated in its draft guidance on compounding facilities, the use of compounded drugs may put the health and the safety of patients at risk. While we take seriously this and any attempt to challenge the hard work we have undertaken on behalf of Thiola and the patients we serve, we do not expect significant demand for these unapproved products.

Moving on to Cholbam, we saw patient additions accelerate in first-quarter, the promotional and educational efforts targeting the 70 centers of excellence for bile acid synthesis disorders and Zellweger spectrum disorders appear to be raising awareness of the disorders and the availability of potential treatment options. As we mentioned on our last call we launched a new program in late January that enables timely access to comprehensive genetic testing in order to simplify and accelerate the diagnostic process. This program which is free of charge has already proven to help diagnosis in the first quarter, and we believe it will help identify more patients as we continue to raise awareness about its availability.

Shifting to Chenodal we saw an encouraging increase in the number of patients initiating therapy in the first quarter as our efforts to raise awareness of CTX appear to be gaining some further momentum. Regarding our efforts to add CTX to the Chenodal label, we had a constructive meeting with the FDA last month and came away more optimistic on a potential pathway for the inclusion of this indication to the label which Alvin will touch on shortly.

Lastly before I turn it over for our research and development update, I will touch briefly on Business Development and the authorized buy back. Regarding business development our disciplined approach to engaging on rare disease assets that would diversify our commercial portfolio and or add to the late stage pipeline continues to progress with multiple parties.

And finally our Board has authorized a share repurchase program of up to $40 million. The share repurchase program provides another option for the Company to support our stock in the event of further market volatility.

With that, I'll now turn it over to Alvin to walk through our research and development update. Alvin?

Thanks, Steve. The research and development team began the year with some key achievements that helped advance the portfolio and kept us on track to reach our strategic milestones in 2016. I'll start with our later stage development program which is sparsentan for the treatment of focal segmental Glomerulosclerosis or FSGS. I'm very pleased that we met our goal of completing enrollment of the Phase 2 DUET study this March thanks in large part to the tremendous efforts of the clinical team and our multinational a network of investigators.

The DUET trial is the largest industry sponsored trial in FSGS that's ever been enrolled, and we take a lot of pride in the fact that we are breaking new ground on behalf of the FSGS community. Importantly delivering on this goal keeps us on track for a top line readout of the primary endpoint in the third quarter of this year. We remain completely blinded to the data so we do not anticipate significant program updates between now and then.

As a reminder, the DUET study was designed to detect a clinically meaningful reduction proteinuria after eight weeks of treatment compared to the active control of irbesartan which is an angiotensin receptor blocker. Reduction in proteinuria is widely regarded to be beneficial in the treatment of nephrotic conditions including FSGS and is believed to be associated with a decreased risk of progression to end-stage renal disease in these patients.

Based on our previous regulatory interactions, we believe that proteinuria will be given consideration as a surrogate endpoints for sub part H approval in the US if the data from DUET are robust and supportive. And as Steve already mentioned our scientific team is also collaborating with academic research networks and patient advocates to develop the supportive data package to articulate the rationale for proteinuria as a surrogate endpoint for the treatment of FSGS.

Also importantly the randomized eight week treatment data will be supplemented by the open label extension data that we are collecting. We are encouraged that a vast majority of patients who have enrolled in Duet have opted to continue into the open label extension where all patients are given access to sparsentan. This open label extension will allow for collection of additional longitudinal data for sparsentan with many patients already having been on drug for more than a year.

Our hope is that the totality of the DUET data supplemented by our efforts with the FSGS community will bolster the case for accelerated approval. Sparsentan would represent a major advance in the standard of care for FSGS patients where there are no currently indicated pharmacologic therapies.

The first quarter also marked significant progress for RE-024 which is our novel phosphopantothenate replacement therapy for the treatment of pantothenate kinase-associated neurodegeneration or PKAN. RE-024 has the potential to be the first approve therapy for PKAN, and since it targets the underlying biochemical cause of PKAN, we believe it also has the potential to be fundamentally disease modifying.

At the ACMG meeting in March we presented new data supporting further clinical development of RE-024. There were a number of key takeaways from the data including results of a Phase 1 study of RE-024 in 40 healthy adult volunteers where single oral doses up to 1800 milligrams were found to be safe and well tolerated. No serious adverse events were reported, and the majority of the treatment emergent adverse events were related to taste.

Next, data from the case report of the 35-year-old PKAN patient receiving RE-024 as part of a physician initiated treatment showed sustained clinical benefit over a 12 month period. This was measured by a 30% improvement in the unified Parkinson's Disease rating scale or UP DRS.

The patient was able to walk independently for short distances, something he'd been unable to do since becoming wheelchair-bound after years of steady disease progression. While these data are only from an [n of one] and an uncontrolled setting, the patient's improvement was noted by the treating physician to be a clear departure from the course of this patient's previous disease progression.

New non-clinical data was also presented at the conference. We described the first human cellular model of PKAN in which coenzyme A levels can be modulated and then restored via treatment with RE-024. We also presented pre-clinical data supporting the proposed mechanism of action of RE-024 in mice as well as data demonstrating the molecule distributes to the brain in monkeys.

These data provide reasons to believe that RE-024 will distribute to the brain in humans. And once in the brain it can be incorporated into coenzyme A. These data presented at ACMG support the continued advancement of RE-024 into a study in PKAN patient in which we will look for signs of efficacy.

We continue preparations to initiate this efficacy trial of RE-024 in PKAN patients, and we are slated to start in the second half of 2016. Constructive interactions with the FDA and EMA about protocol design are ongoing, and we are excited to move forward. Before ex-US PKAN patients receiving physician initiated treatment all remain on RE-024 and have now been receiving treatment for up to 23 months.

We continue to encourage investigators o share their findings through appropriate scientific and medical channels. We are pleased that new data from two of these patients will be presented as a poster at the upcoming Movement Disorder Society meeting in June in Berlin. We look forward to having that data in the public domain as we continue to collect foundational evidence supporting RE-024 with the treatment of PKAN patients.

Wrapping up the portfolio discussion with RE-034 which is our synthetic formulation of ACTH. Manufacturing and scale of activities for RE-034 have been successful, and we are exploring options to achieve in vivo proof of concept to support further clinical development of RE-034 in a rare disease indication. We are targeting to have insights from additional data in the coming months which would enable us to reach a decision on further development of RE-034.

Now shifting the focus to the R&D team support for our approved therapies, we continue to work very closely with the commercial organization to ensure that we are optimizing the effectiveness and reach of our products. For Thiola this means we continue our efforts to produce a more patient family formulation in conjunction with our partners at Mission Pharmacal.

For Chenodal our education in disease awareness efforts through the CTX prevalence study are in full swing. I'm pleased to share that enrollment of this long-term study is progressing well with the addition of new centers and subjects during the quarter. As a reminder this dual purpose study is aimed at establishing the prevalence of CTX which s insufficiently characterized in the medical literature. And the study will also serve to keep CTX top of mind within the physician base that could be the first to pick up juvenile ideopathic bilateral cataracts which are one of the key signs that could enable earlier diagnosis of CTX.

Regarding the efforts to get CTX included on the Chenodal label, we met with the agency last month and had a very constructive dialogue. The agency understands the issues at stake and has very collaborative with us in thinking through options to enable a label change.

This latest dialog with the agency has left us optimistic that we will be able to come to an agreement on a path forward that will be both feasible and acceptable to the CTX community. We continue to believe that label reflecting the true nature of Chenodal's utilization is in the best interest of CTX patients, and we continue to enjoy the full support of the patient advocacy community.

In support of Cholbam, our team continues to work on the development of the disease registry which is a component of our post-marketing commitments. We also continued the development of a quantitative diagnostic tool to measure urinary bile acids. All these efforts remain on track. Combined with the recent availability of the genetic cholestasis sequencing panel, our efforts are improving the diagnostic and treatment paradigm for potential Cholbam patients.

Finally, our early-stage efforts continue including our collaboration to explore a novel approach towards N-gly-1 deficiency. As we make progress on the early stage pipeline we will provide further updates. So with that I'll turn it over to Laura to walk through the financials.

Thank you, Alvin. Net product sales from our commercial portfolio consisting of Thiola, Cholbam and Chenodal were $29 million in first quarter of 2016, a 67% increase over the same period last year. This increase was driven by more patients receiving Thiola and Chenodal treatments and the addition of Cholbam to the commercial portfolio in March of 2015.

We reported GAAP net income of $11.2 million for the first quarter 2016 compared to $39.7 million for the same period in 2015. Adjusting for extraordinary and one-time expenses, net income was $5.2 million for the quarter. Significant adjustments for the quarter included $13.4 million of non-GAAP operating loss adjustments, offset by a $14.3 million change in the Company's derivative liability due to share price fluctuation and an income tax benefit of $5.1 million.

Research and Development expenses on a GAAP basis were $14.7 million for the first quarter of 2016 compared to $10.3 million for the same period in 2015. The year-over-year increase is largely a result of higher clinical trial expense related to the Phase 2 DUET study for sparsentan and ongoing preparation for the next RE-024 study.

On an adjusted basis, R&D expense for the first quarter of 2016 was $12.1 million. Relevant non-cash expenses for the first quarter included $2.6 million of stock these compensation and amortization.

Selling, general and administrative expenses were $19.1 million on a GAAP basis in the first quarter of 2016 compared to $14.9 million in the same period last year. The increase over 2015 is attributable to increased headcount in support of the expansion of our commercial efforts and amortization related to the acquisition of Cholbam.

Note that we had a $3 million benefit in the first quarter from the reversal of disputed legal fees as a result of the settlement with our former external legal counsel. Adding this back would have put our SG&A expense closer to $22 million for the quarter.

On an adjusted basis, SG&A expense for the first quarter was $11 million. Significant one time and non-cash adjustments for the quarter consisted of $8.1 million related to stock-based compensation and depreciation and amortization.

During the quarter we had a tax benefit of $5.1 million which resulted from a favorable effective tax rate as a result of orphan drug and R&D tax credits. As of March 31, 2015, we had approximately $315.4 million in cash and cash equivalents, marketable securities and notes receivable from the sale of our PRV. This value includes the present value of the two $47.5 million payment that we will receive from Sanofi this July and also in July 2017.

Looking to the balance of 2016 our emphasis remains on allocating resources to make sure we reach our strategic goals centered on developing our pipeline and furthering commercial growth. As we've said in the past expect operating expenses and cash flow from operations to vary slightly throughout the balance of the year as we invest in the success of our pipeline and our commercial growth.

I'll now to the call back over to Steve for his closing remarks. Steve.

Thanks, Laura. We are very pleased with the progress made in the first quarter particularly in the clinical development area where we believe we are moving the pipeline forward and getting closer to reaching our 2016 milestones. We are also encouraged by the underlying patient trends for all three commercial products which signal increased growth in the first quarter through the balance of the year. As a result we remain confident in our full-year revenue guidance range of $130 million to $140 million.

Looking ahead we have some significant catalysts in store for the rest of year. We are excited for the top line Phase 2 DUET data in the third quarter which will give us clarity on the potential for sparsentan to be the first approved treatment indicated for FSGS. We also look forward to progressing RE-024 with further case report data at the MDS conference in June and the initiation of what we expect to be a registration enabling efficacy trial of PKAN patients during the second half.

Coupling those catalysts with further clarity on RE-034's development path and increasing commercial growth sets us up to create significant value for our shareholders throughout the rest of 2016. Let me now turn it back over to Chris to open up the line for questions.

Thanks, Steve. Matt, can we go ahead and open up the line please?

(Operator Instructions)

Joseph Schwartz, Leerink Partners.

Great, thanks very much. Congrats on all the progress. First on the commercial products I was wondering if I could just follow up on your statement that you expect revenue growth to accelerate throughout the year. Is there a backlog of patients, or are there other reasons why you are confident in saying that?

Thanks, Joe. There is no backlog. What we see though is a really encouraging trend with all three products, and I should say Q1 was a bit of an unusual quarter in that we saw some of the best patient growth, net new patients that we've seen for several quarters, and it is probably obvious everyone that we did have a slight decrease in net revenues from Q4 to Q1.

So we saw patient growth but net revenues go down which is not something you normally put together. A number of factors influenced that, the primary one being that patient co-pays were reset with event of the new year whereas in Q4 we had a gross-to-net that was substantially different from Q1 as we picked up those co-pays. That gets minimized as the year goes on, and even by the end of the first quarter most of that impact was gone.

But it did have a substantial impact on our January net and put us in a bit of a whole which by the end of the quarter we felt good about, and we go into Q2 on a strong run.

Okay, that's great. Then I was just hoping to ask also on CTX and I guess what led to the breakthrough with the FDA that it sounds like you had, and then what do you think will be required to get the data, either existing data, or do you think you will have to generate new data for the label to reflect the way the drug is being used?

Joe, instead of characterizing it as a break I would say it is more progress in terms of the continuing dialogue that we've had. Again we've always found the agency to be very receptive when it comes to the interests of the patients which we think are best served by having CTX on label. The agency's previous position was that we should conduct a placebo-controlled trial which we found during our conversations with the community to be not acceptable with patients given the current availability of therapy which is standard of care.

So during our last interaction the agency signalled some flexibility with regard to clinical design. The ball is in our court, so we're following up with them with regard to what an acceptable data package might look like, and so that still under discussion, but again we see significant progress in those discussions.

Okay, great. They just one last one on sparsentan, what data do you think would be supportive of registration? What would that look like in terms of being robust and clinically meaningful? And then can you talk a little bit more about what you are doing to wrap some other contextual information in terms of patient advocacy and other information which I think you used the words totality of the data in order to support a potential registration?

Yes, that's right. The totality of the data means that not only will we have the eight-week randomized data, but we will also have the open label extension data where all patients who've elected to go into the open label extension will be on sparsentan for an extended period of time. By the time we are ready to go to the agency some patients will have been on sparsentan for multiple years.

So I think that that can address both the efficacy and the potential safety concerns that the agency may raise. So in addition to that what we'd also like to present are data from observational cohorts, and this is what we are working with our academic collaborators on to really try and tie proteinuria to long-term kidney outcomes.

So that can this be done through looking at natural history and observational data sets to best understand how tight the linkage is between proteinuria and the risk of developing ESRD. So that's what we think of in terms of the totality of data, and that's what we are aiming at.

And just the first part of that question. What would you hope to see that would be clinically meaningful and robust enough to file for accelerated approval?

So that's not been defined for us prospectively by the agency. What we have designed trial to detect is a meaningfully greater decrease in proteinuria then irbesartan. So recall that we're trialing sparsentan against an active control irtbesartan, so we need to see a clinically meaningful separation between those two arms. That's what we've powered the study to produce.

So when you say power that would imply statistical significance but meaningfully greater implies the same or different degree, do you think?

I would say the two are related. We need it to be both statistically and clinically meaningful.

Okay, thank you.

[Joe Kim], BMO Capital Markets.

Hi, this is [Alex Tanakis] on for Joe Kim. I had a question, a couple questions one first one is financial. You guys reported a big stock repurchase, and we wanted to know if that means that there will not be a product acquisition this year?

Sure, good question. It does not mean that at all. We are still very hopeful of acquiring additional assets this year. We are actively engaged at this point, and we do feel that the best way to use our capital is to move our pipeline forward and to acquire additional assets for our business development efforts. But we saw some erratic and sometimes we felt was irrational stock movements in Q1 and felt like it would be important to have that arrow still in our quiver should we need it in the future.

Okay. And a little bit about sparsentan. We wanted to know what the market research suggests about well FSGS is diagnosed by clinicians.

The diagnosis of FSGS -- I won't say it is easy, but it is relatively straight forward. It's a pathalogic diagnosis which means that FSGS describes the particular lesion that is found once the kidney is biopsied. So the typical course of events would be a patient might present with proteinuria or with peripheral edema, and the work up would ultimately lead to a renal evaluation where there would be blood work as well as potentially a kidney biopsy if no other sources of disease can be identified

So once that biopsy is taken it's a relatively straightforward jump to the diagnosis of FSGS.

Okay, thanks. And in the hypertension studies for sparsentan, sparsentan increased edema over placebo but was similar to the active control and is the balance of edema rate you're looking for in Phase 2 similar, or what would be an unacceptable increase over the comparator?

It is hard to say because these are apples to oranges comparisons, so when you look at a hypertensive population that's very different than looking at a population that has active kidney disease. So I would say the translation between those two patient populations is tenuous at best.

So I think what ultimately is going to be the bar is going to be is going to be -- it's going to be a risk-benefit analysis that we perform with the DUET data that says that the risk of edema is acceptable in terms of the clinical benefit of the drug. So we did not go into it with a particular bar. I think we just have to have acceptable safety, and that's in the discussion that we will have with the regulators with the data in hand.

Thanks and one last question with regards to RE-024. In the compassionate use with PKAN, what has been the rate of improvement that you've been seeing in the physical sign of improvement where people started to show benefit?

Yes, if you refer to the abstract and the poster that were released at ACMG you will see that the rate of improvements in UPGRS was roughly 30% which is clinically meaningful, and the qualitative description of that patient I think gives you some sense of what that means. He at first was essentially wheelchair bound, and the improvement on therapy allowed him to be ambulatory, and so I think that's the magnitude of difference we're seeing.

Again I just want to caveat that by saying that's a n of one in a uncontrolled setting so you have to take that for what it's worth. When you see the results coming out from Berlin I think you will have more data points with which to contextualize that.

Great, thanks so much.

(Operator Instructions)

Lisa Bayko, JMP Securities.

Hi there. I'm wondering if you could just expand a little on the growth so for the different products maybe could go through what was the gross to net in the first quarter and what is coming out of the first quarter. In other words what's kind of the rate for the rest of year? Ballpark.

Sure, the gross to net change is impacted Thiola disproportionately for whatever reason, and we saw several different things impact that. I mentioned co-pays, and interestingly the co-pay issue in January was cut in half when we went to February and then cut in half again by the time we got into March. So, we're going into Q2 essentially with something pretty similar to what we had in Q4 of last year, not exactly but no meaningful difference anymore. But it was a pretty big hit on January sales.

We also saw a change in our rebate liabilities in the DOD and Tricare systems and the VA system, so that had a bit of an impact. The other thing that did have an impact on January, as we saw, some additional shipments go out at the end of December, and we think that was predominately related to people who knew their insurance was going to change and wanted to get some extra product in to make sure they did not run out of supply while their new insurance was giving authorization.

So I've actually given you a broader answer than you just asked work, but the net impact that we see going forward is probably a 2% to 3% difference in gross to net as compared to Q4 of last year. Whereas in Q1 it was closer to a 6% difference in gross-to-net as compared to Q4 of last year.

Okay, that's really helpful, thank you. Then could you at all comment on what is the rate of new patient adds now? I know you are kind of on a roughly 30 per month or so rate. Is it back up to that level at this point for Thiola?

I think it was closer to a 30 per quarter toward the end of last year, but we've quit giving specific numbers. I don't want to get into a patient counting mode with any of the three products. What I will say is that Q1 had a very significant number of new patient adds for Thiola.

Chenodal had the best new patient add quarter since we acquired product, and Cholbam had the best new patient add number since we rolled the clinical trial patients onto commercial therapy in Q2 of last year, so we are encouraged with the patient numbers. And I think as I said going forward into Q2 we are going to see less of an impact on the gross-to-net. Should see solid growth, and that's why we are still very comfortable with $130 million to $140 million forecast on the top line for this year.

Okay. Great. Then just for your SG&A I missed the comment you said about backing out legal it would've been something I'm just wondering if you could give us so this year is the current rate a good run rate for both R&D and SG&A or do you know maybe you can give us the shape of what the year would look like for both of those?

Yes, hi, Lisa. In Q1 we had an SG&A credit, if you will, for reversing some legal expenses due to a settlement, so our expense would have been $3 million higher closer to maybe $22 million for Q1. And so I think you'd want to neutralize for that going forward, and we do expect that Q1 is probably a little low compared to our future quarters going forward throughout the year. There will be some peaks in the Q3, lake Q2, Q3 timeframe as we complete our DUET study and then we also have the PKAN costs coming in for RE-024, so our SG&A will increase a little bit and R&D across the board for those, but I wouldn't say materially from these levels. But this is a low quarter compared to where we expect to be to the year, lower.

Okay. Good, that's helpful, thank you.

At this time I'm showing no further questions from the audience.

Great. Thanks, Matt. In that case I'll bring the call to an end and thank you all for joining us, and we look forward to updating you next quarter.

Thanks, everyone.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Good day.