Vyne Therapeutics Inc (VYNE) 2020 Q3 法說會逐字稿

Good day, and welcome to the VYNE Therapeutics Third Quarter 2020 Earnings Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Michael Wood, Lifesci Advisors. Please go ahead, sir.

Thank you. Good morning, everyone, and thank you for joining us this morning. Before we begin the formal remarks, let me remind you that some of the information in the press release that was issued by the company this morning and on this conference call contain forward-looking statements that involve risks, uncertainties, and assumptions that are difficult to predict or it's an express and reflect optimism, satisfaction with current progress, prospects or projections as well as words such as believe, intend, expect, plan, anticipate, and similar variations identify forward-looking statements, but their absence does not mean that a statement is not forward-looking. Such forward-looking statements are not a guarantee of performance, and the company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in the company's filings with the SEC.

These forward-looking statements speak only as of the date of today's press release and conference call, and the company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this call.

In addition, the financial portion of the call will include certain non-GAAP financial information. The company has provided a reconciliation for such numbers in the earnings release.

Participating in this morning's call are Dave Domzalski, Chief Executive Officer of VYNE Therapeutics; Andrew Saik, Chief Financial Officer; and Matt Wiley, Chief Commercial Officer.

At this time, I'd like to turn the call over to Dave Domzalski. Dave, please go ahead.

Thank you, Michael, and good morning to everyone. This is our first quarterly call since we announced our rebranding to VYNE Therapeutics in September, with the corresponding update of our ticker symbol to VYNE. Having achieved FDA approval for our 2 commercial products, AMZEEQ and ZILXI, we thought that this was a good opportunity to take a look at our corporate branding and make sure this was aligned with our vision and a positive image we wanted to project to our customers and various stakeholders.

The symbolic meaning behind our new name reflects our core values, strength, growth, endurance, and resilience, and is a testament also to the value of our proprietary technology.

We're excited to have launched ZILXI on October 1, which is our 1.5% minocycline topical form for the treatment of inflammatory lesions of rosacea in adults. We received FDA approval for ZILXI in May. And this is, in fact, the first minocycline product in any form to be approved for use in rosacea.

Our immediate priorities for ZILXI are to leverage physician experience with AMZEEQ as well as our MST technology in order to drive rapid trial and experience with ZILXI and gain broad payer acceptance and reimbursement.

We already made progress right out of the gate on the payer front, with the signing of a contract with Express Scripts just after launch. Matt Wiley will expand on this. The rosacea market remains an area of significant unmet medical need, and we believe that ZILXI should receive broad market acceptance. Within just a few weeks of launch, we are already seeing excitement from health care providers relating to the availability of ZILXI of a new treatment option for patients.

Turning now to AMZEEQ. The overall branded acne market continues to recover, and prescription count trend continue to grow. I'm pleased to report that both weekly and monthly prescriptions have now eclipsed pre-COVID levels for the first time since the shutdown in March, and then we are gaining market share. We continue to see both interest and enthusiasm among health care providers as trial and utilization of AMZEEQ continues to increase.

Also on October 1, we hosted a physician symposium for investors, featuring 3 dermatologists, which highlighted the way in which these doctors are currently using AMZEEQ and how they plan to use ZILXI in their practices. They shared that they were pleased with the performance of AMZEEQ in their patients and expect continued broad utilization of AMZEEQ in acne.

We were also delighted to hear that these doctors believe that ZILXI could become their first-line therapy for rosacea. If you miss the event, a replay can be found on our website at vynetherapeutics.com under the Investors section.

Simply go through the Events and Presentations section, click on the investor events, physician symposium dated October 1, 2020, fill out the registration form, and you can view the replay.

Regarding FCD105, which is our investigational combination minocycline and adapalene foam for moderate to severe acne. We will have our end of Phase II meeting with the FDA this quarter and intend to share our Phase II data along with our plans for our Phase III development program.

Recall that in June, we announced positive results in the 447-patient Phase II trial, showing potentially best-in-class improvements of both IGA treatment success score and inflammatory lesion counts.

Finally, in September, we announced the appointment of Patrick LePore to our Board of Directors. Pat has an extensive record of creating shareholder value, both organically and for strategic M&A as a Board Member and a former CEO of several life science companies.

We're thrilled to have Pat in our Board. His experience will be enormously helpful as we continue to execute on the launch of our commercial products and grow our business.

With that, let me now turn the call over to Matt Wiley, our Chief Commercial Officer, who'll provide an update on our commercial activities.

Thanks, Dave. We are pleased with the commercial execution for both AMZEEQ and the recent launch of ZILXI into the rosacea market. Although the pandemic has had impact on both the acne market and physician access for our sales team, I'm encouraged by the resilience and fortitude of our team to continue to sell through these obstacles.

AMZEEQ prescription volume in the third quarter came in at 26,900 NRxs and 32,700 TRxs, representing 49% and 52% growth over Q2, respectively. Additionally, in our most recent weekly data ending the week of October 23, we [equipped] 3,500 TRxs for the first time.

We continue to expand our reach and trial of AMZEEQ with a number of unique prescribers exceeding 5,500 through Q3, representing a 31% increase over the previous quarter. Additionally, since launch, we've educated approximately 1,300 health care providers on the features and benefits of AMZEEQ through virtual and live speaker programs with the ambition of educating over 2,000 health care practitioners total in 2020.

With respect to market access, our coverage for AMZEEQ has increased to 67% of total commercial covered lives, with 1 major PBM negotiation in process. Our goal is to complete negotiations before the end of the year, which would take our covered commercial lives to over 80%, which has been our target.

Turning to ZILXI, the rosacea brand and prescription market appears to have largely recovered from COVID-19 impact. ZILXI was launched on October 1 with over 7,500 calls made to date. We've already reached 55% of our ZILXI target universe and educated over 500 health care providers through peer-to-peer programs in the month of October.

Conversations with payers on ZILXI continue to be encouraging, with payers expressing strong interest in the brand and acknowledging a significant unmet need in the rosacea population. Express Scripts, one of the nation's leading PBMs, made the decision to cover ZILXI effective October 2, 2020, on its National Preferred, Flex, and Basic commercial formularies.

This is an important step toward broad payer coverage as it represents millions of additional covered lives in the U.S. that follow these formularies. With this success -- with this successful contract execution, we now have just over 50% of commercial lives covered across the country. We expect additional PBM contracts to execute over the next few months.

I will now turn the call over to Andrew, who will provide the financial update.

Thanks, Matt. In my review of the third quarter financials, I will talk about revenues, costs during the quarter and the 9-month period ended September 30, and our cash position and our market access program.

Revenues totaled $3.3 million for the quarter. Our revenues consisted of $2.9 million of product sales primarily associated with AMZEEQ and $0.4 million of royalty revenue from Finacea Foam, our product outlicensed to LEO Pharma. There were no revenues for the 3 months ended September 30, 2019.

Switching to market access. Our strategy has been predicated on leveraging a synthetic access program that allows a patient without commercial insurance coverage to acquire AMZEEQ for $75 while we pursued broad payer coverage. This was done to ensure patient access during the launch phase of our product, and we always anticipated eliminating this temporary and unprofitable program. Given that we are in the final stages of contract negotiation with the one remaining large PBM, we expect that we will be able to end this program in the first half of 2021.

With the anticipated attainment of having over 80% of commercial lives covered and the elimination of the $75 cash pay option, we feel comfortable tightening our expected net value per prescription range from $200 to $400 per prescription to $200 to $250 per prescription. We believe that this should be realized sometime in the first half of 2021.

Our cash, cash equivalents, and investments totaled $77 million as of September 30, 2020. We believe that the $77 million and our projected cash flows from revenues provide cash runway through the end of 2021.

Beginning this quarter, we are going to begin showing our earnings on both GAAP and non-GAAP adjusted basis. We believe this will provide investors with better transparency into our earnings and make it easier for investors to compare our results to analyst estimates. We have provided a reconciliation for GAAP and non-GAAP adjusted numbers in our earnings release.

Our third quarter 2020 GAAP net loss was $24.7 million or $0.15 per share. This compares to $23.2 million or $0.23 per share for the comparable period in 2019. When excluding $2.6 million of stock-based compensation expense, our third quarter 2020 adjusted net loss was $22.1 million or $0.13 per share.

For the third quarter 2020, adjusted operating expenses were $24.1 million. While excluding cost of goods sold, adjusted operating expenses were $23.8 million for the quarter, including SG&A expenses of 17.5% and adjusted R&D of $6.3 million. This compares to $21.9 million of adjusted operating expenses for the third quarter 2019, which included adjusted SG&A expenses of $9.9 million and adjusted R&D expenses of $12.1 million. For both periods, adjustments consist entirely of nonstock compensation expense.

Regarding the restructuring we underwent related to the combination of Foamix and Menlo, the restructuring is now complete, and our Q3 cost structure should be more indicative of our expenses and costs going forward.

We believe the operating costs of approximately $25 million per quarter are sustainable into the future but do not include incremental costs it would be required for the anticipated Phase III trials for FCD105.

Moving to the 9-month period ended September 30. Our 2020 GAAP net loss for the period was $232.4 million or $1.99 a share. Included in the net loss were $154 million of noncash expenses consisting of $85 million related to contingent value rights, which converted in Q2; $54 million related to Q2 impairment of goodwill in IP R&D related to the Menlo merger; and $15 million of stock-based compensation expense.

When excluding these noncash items, our adjusted operating expenses and adjusted net loss were $93 million and $78 million, respectively. Our current share count is unchanged at approximately 168 million shares.

For full details on our financial results, please refer to our Form 10-Q filed today with the SEC. Back to you David.

All right. Thanks, Matt, Andrew, for your detailed updates. That concludes our prepared remarks. So operator, we're happy to open the call now for any questions.

(Operator Instructions) And we'll take our first question from Louise Chen with Cantor.

This is Carvey on for Louise. Just 2 questions here. First of all, after completing the negotiations with the last remaining major PBM, what is your plan on further increasing your coverage level?

Secondly, what are some possible scenarios coming up from the -- in our Phase II meeting with the FDA for FCD105 in the fourth quarter?

How much will each scenario impact your timeline and R&D costs? And lastly, are there any plans to progress the development of serlopitant after the reverse merger with Menlo?

Thanks, Carvey. I'll provide some thoughts on your last 2 questions. First of all, regarding serlopitant. Yes, as we stated in the past last few quarters, right now, we're not putting any direct investment behind serlopitant. So our focus is on the execution of AMZEEQ and ZILXI launches as well as progressing FCD105.

That being said, we obviously have an asset. We believe there is value to it. We're certainly open and have had discussions in the past with potential partners. We have nothing at all to -- that's imminent to provide any updates on that. Our focus, obviously, at this stage is on the commercial assets and, again, the investment in FCD105.

Regarding FCD105, I'd share, we'll have the Phase II meeting this quarter. And we said that depending on the outcome -- or assuming a positive outcome, which we would assume such, that will put us on a track to initiate a Phase III program sometime in the first half or so of next year.

But there are a lot of variables that go into that. We -- one is just looking at what the environment is going to be in light of the current pandemic. We believe, as we've said in the past, the data from the Phase II studies for FCD105 were quite encouraging. We're very pleased with the outcome of those Phase II results. We do believe that that could be replicated in the Phase III program. It has the potential to be a best-in-class product for the treatment of modest to severe acne.

Normally, the guidance are quite clear on Phase III programs for acne. And a standard program required 2 double-blind, vehicle-controlled study, plus an open-label safety extension, and then you have the requisite that Phase I from a safety studies.

But as I've said in the past, there's quite a significant body of work around minocycline, obviously, through AMZEEQ and ZILXI. And the dose in FCD105 is bracketed between the dose of AMZEEQ and the dose -- as a concentration of AMZEEQ and the concentration of ZILXI. It's a 3% dose in minocycline in FCD105. AMZEEQ, as you know, is a 4% dose of minocycline and ZILXI is a 1.5% dose of minocycline.

So there's a significant body of data out there for minocycline. And the dose that's in the FCD105 product for adapalene is 0.3%, which is the marketed -- which is the dose for the marketed product, Epiduo and Epiduo Forte. So the team internally here at VYNE has done a fantastic job of putting together a comprehensive package for the FDA.

We'll have that meeting again later this quarter, and we'll see how it goes in terms of what the ultimate design of the Phase III program should be. We're obviously going to put our best foot forward to have an efficient design as possible. And we'll just take it from there. We'll know later this quarter.

But we view that if we do a full comprehensive program, 2 double-blind, vehicle-controlled studies plus the open-label safety expansion, that's roughly from the time first patient is initiated, it's roughly 20 to 24 months timeline from beginning to end.

And then absolutely factor in roughly 10 months or so for an NDA review. So in kind of sort out how long a program would go. And the cost of those are, as I say full program, as I've outlined, is $30 million to $40 million spread out over a 2-plus-year time period. But we'll see ultimately what a Phase III program look like after we've concluded our meeting with the FDA later this quarter.

I think regarding coverage, I'll turn it over to Matt for [branding].

All right. Carvey, so the question is about what we do after we get the remaining PBM under contract. And it really comes down to pull-through from that point forward.

Certainly, working with the custom plans underneath the major PBMs to make sure that they are aware of the formulary options that they have and that they take a deal. I think that's one of the things we've probably seen between the last time we reported. And today, as we now have 63% coverage back when we did the symposium in October, we now have 67%, and that's a nod to being able to pull through some of those custom plans and the Blues plans underneath the payers that we already have under contract. And that's what we'll continue to do after we get the last PBM under contact as well.

And next, we'll move to David Amsellem with Piper Sandler. And would you like to move on, he's not responding.

Sorry, I was on mute actually. Can you hear me?

Yes, now we can hear you, David.

Okay. Sorry about that. Just wanted to get some thoughts on when you think you're going to be pulling ZILXI patients from. Are these going to be patients who are on doxycycline or doxycycline patients who are naive to tetracycline or patients who have been on other topicals.

Just trying to get a sense of what do you think the kind of patient mix will be. And maybe I'll ask the same question for AMZEEQ. If you can go through the patient mix, where you think patients are coming from, and particularly the extent to which you're getting treatment-naive patients.

Sure. So let me start with [ZILXI]. So yes, you've got a pretty good beat on this one. We see from our demand study that primarily we're going from metronidazole and doxycycline.

And further down the list, obviously, we get to other displacement of products such as Soolantra and Finacea. But yes, the 2 primary ones would be the metronidazoles and doxys of the world.

As it relates to AMZEEQ, we're seeing pretty broad disruption in the market. So we are taking from a bit of everything. It's tough to discern from our data, whether we're being added to certain products or displacing certain products, but it has been a pretty disruptive margin entry as we expected it today.

Yes, Dave, I would add, too, in terms of the -- where we anticipate the potential to pull business from – for ZILXI, as Matt outlined, and you've outlined the oral antibiotic arena, and what is doxycycline and minocycline. And then metronidazole, they're the 2 biggest therapies that are utilized in the treatment of rosacea.

For metronidazole, there's over 1 million prescriptions written in a year for the treatment of rosacea. So we're certainly encouraged by the potential and what we've seen in the market research. Obviously, we're very, very early in the launch to see how things ultimately play out. But we have seen consistently, both in the research for AMZEEQ and research for ZILXI that these products have the potential to be disruptive, that we obviously have to get more traction on AMZEEQ. We're 9 months into the launch. And as Matt outlined, we're seeing share gain pretty broadly. And we're eager to see how it's going to shake out for ZILXI as we continue to launch that drug.

Okay. That's helpful. If I may just make a follow-up question. To the extent that 105 gets to market, what is your expectation regarding the extent to which you could expand the -- your acne franchise footprint? Or do you expect a large bit of conversion and some cannibalization? Just trying to get a sense of the extent of expansion or if this is really more of a conversion to the combination product like [Aragorn].

Yes, David. So I look at this as a welcome addition to the market. So obviously, there are going to be certain patients who are going to need a combination product versus those that going to do just fine with AMZEEQ monotherapy. And so giving the market a choice for those products, I think, is the right thing to -- the right way to think about it. FCD105 certainly is going to be a great addition. We think it's going to be a game-changer in the market. So we do think that it's going to be equally disruptive as it was coming into the market. And we have some market research work to do ahead of us to understand the impact on the market overall, but we feel pretty optimistic about its chances. Given what we've seen with the market research for AMZEEQ and the disruption it's having in the current market.

And next, we'll move on to Ken Cacciatore with Cowen and Company.

Just a couple of questions. I got on a little bit late. I just wanted to hear if you gave an update on ZILXI managed care timing that we could maybe match AMZEEQ. I know you're still outstanding on CVS, but it sounds like this quarter, when I came on, you were saying it looks like that could be finally done.

So just wondering if you could layout for us when do you think we'll have kind of matching coverage on ZILXI? And then is net pricing still going to be roughly the same, the $200 to $250 that you're capturing for AMZEEQ -- for ZILXI when all things shake out.

And then lastly, don't get angry at me because I'm going to kind of ask you guys to do a little bit of math. But according to my math, you would need kind of at a normalized pricing once coverage is on board, about 8,500 combined AMZEEQ and ZILXI prescriptions per week to get to breakeven.

Just wondering when do you think you guys will internally model that type of run rate. As I look at an Axon and an Epiduo inferior products to AMZEEQ, they're doing about 15,000 to 20,000 a week just individually. You have a combination franchise. So as investors try to stare at the balance sheet and the confluence of negotiations with managed care and kind of getting that net pricing on board and prescription growth, are my numbers basically right?

I know I just threw a lot of numbers at you. And then if we're on a good run rate, do you think the capital markets in terms of debt would be available to you not necessarily just equity? So a lot to chew down, but wanted to see if you could help investors as they stare at the confluence of growth, managed care, and your balance sheet.

Matt, do you want to take that?

Sure. Ken, it's Matt. Regarding the PBM timing for ZILXI, so first of all, we've engaged with all major and most of the smaller PBMs across the country.

We feel very good about the conversations that we've had to date. There are certain PBMs, as you know, that require for their custom plans a new-to-market block for 6 months. So we're in that window now. But we feel pretty optimistic that we can get these done in a timely fashion and get to a similar coverage to AMZEEQ quicker than we were able to with AMZEEQ, given the one major PBM that had a contract change during the course of the year. So we feel good about the timing, and we believe that this should be a little quicker than AMZEEQ has been.

Yes. Sure. And David, with regard to your math, your math isn't far off. Obviously, we've given the guidance of about $200 per prescription. To your question, we would expect ZILXI to be relatively similar to AMZEEQ. As you know, the WACC price on both products is the same. As we pursue coverage with the payers, we obviously have a precedent. We don't want them to be disparately priced because we don't want switching between the 2.

We want them to be on indication. So we're doing our best to keep them at price parity. So I think your math is correct. And I think your pricing assumption for ZILXI is correct. As to the timing, as you know, we haven't given timing in our forecast. So I'll allow you to project that out. But I agree with you, and I think Matt and Dave would agree. We believe our products are superior, and we simply need to get the traction in the market and the [game] as quickly as we can.

(Operator Instructions) Next we'll hear from Patrick Dolezal with LifeSci Capital.

Just a COVID-related question to start with. As some cases are beginning to rise in certain areas of the country, I'm just curious if there's particular territories adversely affected by tightening restrictions at this point? Or you've been very -- recovery trend is kind of continuing to predominate across the board?

And then on a similar note, just in terms of general seasonality, what should we expect with the acne and rosacea market. I mean even in winter and particularly as the new year approaches?

Thanks, Patrick. Regarding COVID, this is obviously the big unknown. And as a follow-up to Ken's question, our response is we've been consistent over the last couple of quarters. We're cautious about putting a line in the sand on when we'll hit certain marks for profitability and the like, just because of the uncertainty of the current environment.

I think we're all obviously still living with this global macro arena where we've got spikes in cases in various geographic areas that we have to contend with. And Matt can provide a little more color. In large part, again, our field force is fully deployed but remains similar as I've shared in past earnings calls that it varies by geographic region.

The assets, more open areas where we're not seeing spikes in cases, representatives have pretty open access getting in. There's obviously the appropriate regulations and rules from the offices and everybody is taking the appropriate precautions. But there are certain areas around the country that are much more open than others.

And so we continue manage that. Where there's more restrictions on an office level, we pivot to more virtual initiatives. And again, despite all of the headwinds, we're quite pleased with the efforts of our team.

And I think that's reflected in the numbers that we presented at the top of this call, both in prescription growth as well as our continued increase in the number of unique prescribers.

So yes, we're continuing to manage this, like any other company out there. I think we've gotten pretty efficient and proficient at pivoting to more virtual environments as needed. And I'll turn it over to Matt to provide some additional color.

Sure. So regarding the markets themselves, let me start with the rosacea market, which has predominantly healed since the COVID-19 impact. We have seen the number of diagnosed patients and NRx volumes rebound significantly similar to, if not ahead of, where they were in early Q1.

Regarding the acne space, if we look at the TRx volumes Q3 in 2020 versus Q3 in 2019, still down about 10%, but it has been coming back nicely. In fact, this last week, we saw the NRx volume top up over 70,000 for the first time since the COVID lockdown. So that's an encouraging sign and something that, I think, points to better days ahead.

Regarding seasonality, so with the acne patients, it's typically driven by when the kids go back to school. So we do see some spiked volume typically in July and August over the course of the year.

With rosacea, it's a little different. There is a true seasonality component, driven by the triggers that these patients have, specifically the change in seasons from cold weather to warmer weather. And we see this in the diagnosed patient volume in March, April, and May. And so that should actually be a slightly -- a higher period of time where rosacea patients are seeking treatment. We also see that in search volumes. So we see the same phenomenon, not just with when patients are getting diagnosed of what they're searching for and triggers that they're searching related to rosacea. So there is a true seasonality component to that disease and something that is aligned with our strategic thinking.

Okay. There are no further questions at this time. I would like to turn it back to management for any additional or closing remarks.

Yes. Thanks, operator, and thank you, to everybody, for taking time out of their schedules to join us on this call. We look forward to continuing to provide an update on our progress.

And we wish everyone to have a great rest of the week, and stay safe and healthy out there. We'll speak to you soon. Thank you.

And that will conclude today's call. We thank you for your participation.