Earnings Transcript for VYNE - Q1 Fiscal Year 2021

Operator: Good morning and welcome to the VYNE Therapeutics Conference Call to Discuss the First Quarter 2021 Financial Results and Update. At this time all participants are in a listen-only mode. [Operator instructions] I will now turn the call over to Michael Wood of LifeSci Advisors. Please go ahead.

Michael Wood: Good morning, everyone, and thank you for joining us. Before we begin with formal remarks, let me remind you that some of the information in the press release issued this morning and on this conference call contain forward-looking statements that involve risks, uncertainties, and assumptions that are difficult to predict, including statements, forecasts, and observations regarding future financial and operating performance, impacts of the COVID-19 pandemic on VYNE, and observations regarding ongoing operating expenses and net revenue. These statements will include observations associated with the commercialization of AMZEEQ and ZILXI in the United States. They will also includes plans and expectations regarding the success, timing, and cost of clinical trials, words that express and reflect optimism and satisfaction with current progress, prospects, and projections, as well as words such as belief, intend, expect, plan, anticipate, and similar variations identified 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 contribute to such differences are described in detail in VYNE Therapeutics’ 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 this call will include certain non-GAAP financial information. For additional disclosures regarding to these non-GAAP financial measures, including a reconciliation of the most directly comparable GAAP measures, please see today’s press release, which is posted on the investor relations section of the company’s website. Participating in this morning’s call are Dave Domzalski, VYNE’s President and Chief Executive Officer; Andrew Saik, VYNE’s Chief Financial Officer; Matt Wiley, VYNE’S Chief Commercial Officer. In addition Dr. Iain Stuart, the company’s Chief Scientific Officer is also on the line and will be available during the Q&A session. At this time, I’d like to turn the call over to Dave Domzalski. Dave, please go ahead.

Dave Domzalski: Thank you, Michael, and good morning to everyone. I’d like to talk about our recent progress and plans for 2021. As we continue to build the business, we are focused on three key areas. The first is commercial execution, where our top priority is to expand initial trial of AMZEEQ and ZILXI and grow continued utilization of our products. Matt Wiley, our Chief Commercial Officer will provide an update on our two lead assets. The second is maximizing operational leverage. We are in a position to take advantage of the significant overlap that exists between acne and rosacea prescribers as we deploy our sales organization efficiently. There will be opportunities to leverage this even further, as we continue to add additional products overtime. In parallel, we will prioritize our resources prudently and keep a tight control of expenses. Andrew Saik, our CFO will provide a financial update. The third is building a diversified portfolio and pipeline. During Q1, we unveiled our newest therapeutic candidate FMX114 is a fixed combination of tofacitinib, a pan-JAK inhibitor and fingolimod, a sphingosine 1-phosphate receptor modulator and the topical gel that is being developed for the treatment of mild-to-moderate atopic dermatitis. Preparation activities for our upcoming Phase 2a study are ongoing and we plan to initiate this study in the third quarter and anticipate top-line results before the end of this year. FCD105, which is our minocycline and adapalene combination product candidates for the treatment of moderate to severe acne, is now Phase 3 ready. We continue to be prudent as to when we would commence a Phase 3 program for FCD105. This will largely hinge on our results of operations and market conditions, which depend on numerous factors, including the impact of the COVID-19 pandemic, recent payer formulary decisions, and our ability to successfully enroll patients to Phase 3 studies. With our focused efforts on the introduction of AMZEEQ for the treatment of acne, as well as our recent launch of ZILXI for rosacea, our prioritization of resources should remain on these two assets within our acne rosacea franchise. And so we believe the environment is optimal to progress the Phase 3 studies for our next product in acne FCD105. As we brought in our pipeline beyond acne rosacea, advancing FMX114 into the clinic next quarter is both an important strategic step for our company and also a judicious deployment of our R&D resources. Let me review the highlights for the quarter. Beginning with FMX114, we created this investigational combination product to address the multifactorial nature of atopic dermatitis and to target both the source and cause of inflammation. Tofacitinib reduces inflammation by inhibiting cytokine release from inflammatory cells and fingolimod inhibits the migration of inflammatory cells. As well as potentially supporting skin barrier recovery an important factor for patients afflicted with this inflammatory skin disorder. On our year-end 2020 call in March, Dr. Iain Stuart presented compelling preclinical proof-of-concept data for FMX114. We now plan to initiate a Phase 2a proof-of-concept study in this third quarter coming up, and anticipate top-line results prior to the end of this year. Atopic dermatitis represents a large market opportunity with an estimated 30 million patients diagnosed in the U.S. Of these 22 million are classified as mild-to-moderate and are on treatment. Topical steroids account for eight out of 10 of the most prescribed products, but are associated with negative effects on the endocrine system and skin structure when used for a prolonged period of time. So there clearly is the need for an alternative that can address the underlying disease pathogenesis and most importantly is safe enough for patients who apply chronically. We look forward to providing further updates on FMX114 this year as the product advances. Regarding our commercial business, we generated revenue of $4.1 million in the first quarter of 2021 compared to $1.8 million in the first quarter of 2020. We now have further clarity on market access and now anticipate AMZEEQ and ZILXI market access to be in the range of 70% to 75% of commercial lives for the balance of this year, as Matt Wiley will discuss further. We also ended the quarter with $120.4 million in cash. I will now turn the call over to Matt Wiley, who’ll talk about our progress on the commercial front. Matt?

Matt Wiley: Thanks, Dave. Our sales team continues to perform well despite the pandemic-related obstacles that exist in the marketplace. The team began the year with roughly 35% to 40% access to target physicians live, which has advanced a 60% today and continues to improve. AMZEEQ prescription volume in the first quarter came in over 34,000 new prescriptions and over 44,000 total prescriptions. While this represents modest growth over Q4, we’re very encouraged when comparing this to key market competitors, which declined more than 10% quarter-over-quarter. We continue to expand our reach and trial to AMZEEQ with the number of prescribers of AMZEEQ reaching nearly 5,200 in the first quarter, representing a 6.4% increase over Q4. To date nearly 8,000 healthcare prescribers have prescribed AMZEEQ. Additionally, we have penetrated 63% of our target universe resulting in a prescription being dispensed and their productivity has risen to 21 prescriptions per physician launched to date. We’re pleased with the progress we have made over the course of the year and expect to see continued increase in productivity due to the high volume of patients and prescriptions in these important offices. We continue to be encouraged by our non-personal promotions, specifically in our ability to educate healthcare providers through our peer-to-peer speaker engagements. This platform is allowing us to quickly and efficiently communicate the recent label change for AMZEEQ, which states the low potential for antibiotic resistance. Our online consumer activation efforts have also been fully deployed for AMZEEQ since early January. Turning to ZILXI. We’ve seen the impact of COVID-19 pandemic on the launch. Recall, we launched ZILXI in October, 2020 during the second widespread state shutdown. The state level and physician office COVID-related protocols have significantly impaired face-to-face interactions between our sales team and doctors over the last few months for both of our brands. The impact of these constraints is more pronounced in a space like rosacea where there hasn’t been a meaningful new entry in over five years, and changing these habits requires consistent field efforts and additional education. Despite these headwinds we’ve generated over 11,000 total prescriptions for ZILXI since its introduction last October with 7,200 prescriptions in Q1 versus 4,200 in Q4 2020, and prescriptions are gaining momentum month-over-month. Nearly 2,300 healthcare providers have prescribed ZILXI since launch with approximately 50 to 70 new writers per week. Furthermore, we have penetrated our target universe by 33%. Peer-to-peer education is a key component of our commercial strategy. As with AMZEEQ healthcare providers have demonstrated keen interest into ZILXI peer-to-peer efforts, and we continue to execute these programs, both live and virtually in 2021. Since the beginning of the year, we have educated nearly a 1,100 healthcare providers in our ZILXI and AMZEEQ speaker events and plan to accelerate the pace as we go back to face-to-face of dialogue. With respect to market access for both products, as a result of CVS Caremark decision, not to cover these products and other new branded competitor drugs on its national formulary for 2021. We now anticipate having 70% to 75% of commercial lives covered in the near-term and are continuing to focus on pull-through efforts with underlying customs plans. Looking ahead, the commercial organization is focused on driving patient demand, accelerating volume as the market conditions improve and continuing to focus on targeted physician penetration and adoption. We believe all of these efforts will have both near-term and long-term positive impact on our business as we emerged from the pandemic conditions. Now, I’ll turn the call over to Andrew Saik.

Andrew Saik: Thanks, Matt. Beginning with our balance sheet, our cash position as of March 31 was $120.4 million, which we believe provides cash runway for at least the next 12 months. We continue to remain focused on cost control and resource prioritization to that end cash used in operating activities during Q1 was $12.6 million. Turning to the income statement, revenues were $4.1 million for Q1 consisting of $3.9 million of product sales for AMZEEQ and ZILXI and $0.2 million of royalty revenue. Our Q1 2021 GAAP net loss was $20.6 million or $0.42 per share. This compares to $40.2 million or $3.79 per share for the comparable period in 2020. Included in Q1, 2021 GAAP net loss were $2.4 million of non-cash stock-based compensation expense. When we exclude this non-cash expense, our Q1 2021 adjusted net loss was $18.01 million or $0.37 per share. Adjusted operating expenses in Q1 were $20.5 million, including adjusted SG&A expenses of $14.6 million and adjusted R&D expenses of $5.9 million. As we continue to focus on cost control, we believe that operating costs at the level of $20 million to $25 million per quarter, which is what we saw in Q4 2020 and Q1 2021 are sustainable into the future. These include expenses required to get to the FMX114 Phase 2a readout anticipated later this year. They do not however include incremental costs that would be required for Phase 3 trials for FCD105. Finally, our share count as of March 31 was approximately $51.4 million shares. Prefer the details on our financials please refer to our Form 10-Q for the quarter ended March 31, 2021 filed with the SEC. Now, let me turn the call back over to Dave for closing comments.

Dave Domzalski: Thanks Andrew. We continued to remain laser focused on our key objectives of driving sales for our two launch brands AMZEEQ and ZILXI and executing against our commercial strategy. Prudently managing our resources and maximizing our operational leverage and building a more diverse pipeline to address unmet needs for patients and providers. We’re encouraged by the progress we made across these fronts as we build our business and create long-term value for our shareholders. I’ll now turn the call over to the operator and open the call for questions. Thanks

Operator: Thank you. [Operator Instructions] Our first question comes from the line of David Amsellem with Piper Sandler. Please proceed with your question.

David Amsellem: Hey can you guys hear me?

Dave Domzalski: Yes. We can, David.

David Amsellem: Okay. Sorry. The operator was cutting up. Okay, so just real quick about, how you’re thinking about gross to net overtime. Number one, and particularly in the context of your commentary on the payer landscape and I’m more interested in how you’re thinking about steady state growth in that for both AMZEEQ and ZILXI. And then I have the follow-up. Thanks.

Andrew Saik: Yes, sure. David, this is Andrew, I’ll take it. So look, not a ton has changed since last quarter. We still believe that commercially covered lives are going to be on that net $200 to $250 per script range. What’s changed is with Caremark not putting the national – not giving us their national formulary access to it. We’re going to keep some synthetic access available to patients. As a result, that the overall net is going to be lower than that, right, obviously, because we’re going to have some prescriptions coming in with the cash pay option. We don’t know exactly what the percentage is going to be. So, we’re not going to sort of, reissue guidance on that. But what we can say is this is a, hopefully moderate change, right. So, we had been expecting between 80% and 85% coverage, we’re kind of in that 70% to 75% of commercial lives. But we just don’t know what the utilization is going to be going forward, because we are going to change the synthetic access program right now it’s $75 that’s going to change. But without knowing exactly, what the utilization is going to be, we’re going to wait and give guidance in the future when we have more certainty. I don’t know, Dave, if you want to add anything to that?

Dave Domzalski: Yes. And I think you captured it perfectly, Andrew. I did key things to David is, yes, this is a relatively recent situation with the CVS Caremark’s national formulary, as we said before. We have access or patients have access to a broad [ph] set of their custom plans. So, we’re just coming out of the pandemic, Matt talked about it. If you think through the end of last year, in the early parts of being this year access in the field, represents get to physicians was 30%, 40%, not about 60%. We’re not at 100% yet. And so, as we continue to inspect that, we continue to see a permanent in our business and growth in our prescriptions. So, we want to be smart about managing, obviously, the growth, the net and the net price for prescription, but I’ve been mindful of access for patients to our products. So as Andrew outlined we’ll keep some form of this co-pay card in place, at least for the time being, until we get a chance to see exactly that the impact from Caremark’s national formulary decision.

David Amsellem: Okay, that’s, helpful. Is there a point? I guess, with any of these plans down the road, where you just look at your rebates and the gross demands, and you just say it’s just not worth it, in terms of being in a contracted position? Because you’re certainly not the only one with these high gross to net? And we’re seeing it in a lot of areas a lot of products, I should say. So, yes how do you think about that philosophically?

Dave Domzalski: Yes. So look, we believe obviously, it’s important to have partnership relationships with payers, that you’ve set a well to balance between, access and the right net price for prescription gross to net decisions to be made. We – again, this is all early. So our plan, when we were preparing to launch these products has always been to partner with the payers, make sure that patients have access and physicians have access. So, all that being said, we’re constantly looking at other ways from a distribution perspective to drive sales. So, we don’t just operate in a vacuum, we think through all these optionalities, and they’re clearly scenarios that we’re considering. For the time being, again, we want to stay focused on, do everything we can to get access to physicians continue to drive awareness, utilization for our products. Again, we’re only a couple months into the launch of ZILXI. We’ve yet to have complete open access for the launch of AMZEEQ since the first three months of the launch last year. So, we want to continue to do that while we’re talking and negotiating with payers.

David Amsellem: Okay, thanks, Dave.

Dave Domzalski: Got it.

Operator: Our next question comes from the line of Louise Chen with Cantor Fitzgerald. Please proceed with your question.

Carvey Leung: Hi, good morning, everyone. This is Carvey on for Louise, a couple of questions from us. So given roughly one-third U.S. population has already been vaccinated, how should we think about any seasonality in sales for the rest of 2021. And also there’s been a lot of innovations in the acne space evolution including technology side,bacteriophage, lasers, other topical treatments and a pipeline. How should we think about acne space and how you’re acne franchise positioned itself in the future entirely? Thank you so much.

Dave Domzalski: So, Carvey, can you repeat the first one again? Sorry.

Carvey Leung: Yes. So given roughly one-third of U.S. population has been vaccinated. How should we think about any seasonality in sales for the rest of 2021?

Dave Domzalski: Yes, great. I got it now. So, where will we see an opportunity clearly is as assuming that offices continue to open, we continue to see improvements in access, which we’re, anticipating that to be the case. There’s some – we anticipate a bolus of patients coming back, call it, and the summer beginning of the fall. We did not see that last year because of the shutdown. And so we’re encouraged by what we’re seeing more and more people getting vaccinated. What were months are happening here, even if you take a look at our prescription trends last year, despite, much more onerous shutdowns, when you looked at the months of June, July, August, and into September, we saw steady growth, 20% compound growth month-over-month. We anticipate seeing this type of opening as we get – again move out of the first quarter and firmly into the second and third quarters, we anticipate seeing that similar type of openness and hopefully we will see that the type of influx of patients into the dermatology offices in the month of August and September as kids are getting ready to go back to school. I think for the rosacea marketplace, you see some of the seasonality right around now, starts right around now through the next quarter. And we believe that the work we’re doing the efforts of our sales force is it puts us in a good position to take advantage of that. Okay. You want to take the second question?

Matt Wiley:

,:

Carvey Leung: Got it. Great. Thank you so much, everyone.

Operator: Our next question comes from the line of Oren Livnat with H.C. Wainwright. Please proceed with your question.

Oren Livnat: Thanks. I have a couple. If I could just return to the patient access programs, it sounds like you’re still, modeling this out and trying to figure out, what exactly, what levers you can push and pull? Can you just talk a little bit about, what that process is like, how long do you need to trial different options before we might have a – I guess an optimal solution going forward. And to what extent, already are you pushing through prior-offs where you guys aren’t covered either through from the doctor or with the specialty pharmacy channel such that, you’re incentivizing payers to return to the table?

Matt Wiley: Sure. So this is Matt again. Let me talk about the synthetic access program first. This is one that we have to balance the out-of-pocket cost and abandonment rates. And so that’s something that we’re analyzing very carefully and as we make the changes, we’re going to like an equalizer, we will balance these things up very carefully to make sure that we don’t offset volume with the out-of-pocket evolution. So that’s, let me – Oren, can you just repeat the second part of the question? I apologize.

Oren Livnat: Second part of my first question, is prior auths actually, obviously that’s an important variable and bringing managed care to the table for you and everybody else. And I’m just wondering to what extent you’ve, got doctors or the specialty pharmacy helping to successfully push through prior auths already.

Matt Wiley: Yes, I mean, so we’ve seen pretty good prior authorization adjudication, roughly half of our covered lives have some form of utilization management. Some of that is electronically adjudicated step therapy. So there is going to be that electronic look back through EMR. The rest is going to be through prior authorizations. The good news is that by partnering with our specialty pharmacy network we’re roughly 50% of our trade goes through. They are really skilled at helping physicians navigate prior authorizations. And so we have really good adjudication where the criteria is met? Now, where the criteria is not met obviously the prior authorization would not go through, but we’ve seen really good success with our prior authorizations thus far.

Dave Domzalski: Yes, I would say what shouldn’t be lost in any of these discussions with that. When we take a look at both the acne and rosacea category, since oral isotretinoin, there’s really only two, franchises that have been going business, which is ours and in the acne space one of the product cleats, and then in the rosacea space modest moving from Rhofade [ph]. So, we’re out there making, getting access to customers and continue to improve that. And the initiatives that we have out there, including the period per selling efforts that Matt had talked about are paying off for us. And we had – we’re certainly anticipating improve access and it continued to drive prescriptions for both these products as we move to the following quarters.

Oren Livnat: If I may just, how material is this label change for antibiotic resistance came kind of late in the game. Is that something that you expect to be able to leverage both or either, or in the field, or even more importantly for managed care that might’ve been resistant to cover you now should be less resistant no pun intended?

Matt Wiley: Yes. We think it’s very important. Part of the reason we developed a product like AMZEEQ is to address the concerns from healthcare providers and in the broader clinical environments around better antibiotic stewardship. And we’ve got data to support that there is a very low propensity for the growth of resistant strains with a product like ours for topical minocycline. That was just recent news. We’ve got just a few months ago. Our field force obviously has this information and they’d been out there working with it over the course of the last several weeks. And to your point, we believe it is from a clinical perspective, we believe it’s compelling as we speak with payers. And so that, information also that came to us was after the decision from CVS Caremark. And so all of this, we anticipate to use the leverage, as we continue to talk with payers, not just on the national level with the PBM, but also with all these custom plans, as we can continue to pull their business down.

Oren Livnat: All right. Thanks. Appreciate it.

Matt Wiley: Yes, of course.

Operator: [Operator Instructions] Our next question comes from the line from Patrick Dolezal with LifeSci Capital. Please proceed with your question.

Patrick Dolezal: Hi, thanks for taking the questions. Could you just give an update on the phasing out of the co-pay card assistance for AMZEEQ and other the CVS decision had an impact there and kind of a timing impact on revenue per script. And then the second part is really just the same question on ZILXI obviously it was a bit further behind AMZEEQ in terms of bringing some of these payers on board and kind of sorting out the details of the underlying plans, but any guidance on the timing of impact of phasing out those co-pay assistance programs for both those programs would be super helpful. Thanks.

Matt Wiley: Sure. This is Matt. Hi, Patrick, so regarding the co-pay card for both AMZEEQ and ZILXI, we intend for those commercially covered patients. We’re still going to have the buy down to $35 out of pocket. So, especially for those who are in a Tier 3 or better co-pay scenario, we’ll continue that part of the program. On the other side where patients don’t have coverage where there’s an NDC block. We are making some alterations to that program for AMZEEQ. For ZILXI is still $75 out-of-pocket as this is a – we’re still in launch mode with ZILXI and certainly we’ll make adjustments where we reserve the right to make adjustments to that program in the future, but that will stay as is. So, we’re going to continue these programs in light of the CVS Caremark decision and we’ll make adjustments as needed overtime to balance out profitability and patient access.

Patrick Dolezal: Great, thanks. And then I guess one more, if I may, can you just provide some qualitative feedback on the reception that providers are having with ZILXI, just curious how doctor implementing this product into their existing treatment paradigm for rosacea?

Matt Wiley: Yes, so far the feedback that we’ve gotten from physicians has been very positive. Physicians have either introduced the product in concert with other therapeutic regimens. They’re comfortable with others are implementing as a monotherapy and we’re seeing a good feedback early on from those physicians. And so it’s still early. I mean, we have 11,000 prescriptions so far, but everything that we’re hearing back is good. And one of the positive things to keep in mind here is that the refill rate on ZILXI is good and growing, even though it’s early. And that is a testament to the fact that these patients aren’t getting relief.

Dave Domzalski: Operator, any other questions?

Operator: [Operator Instructions] Our next question is a follow-up question from the line of Oren Livnat with H.C. Wainwright. Please proceed with your question.

Oren Livnat: Sorry, make you stay here longer.

Dave Domzalski: No problem, Oren. All good.

Oren Livnat: You mentioned that, this is the season now typically for rosacea. So it’s an important time for that product. I’m just wondering, what are you seeing with regards to just – or hearing from physicians about patient visits, as it relates to COVID, pre-COVID versus now in terms of how live that market really is typical levels. And just lastly, any chance you’re going to breakout AMZEEQ and ZILXI revenue going forward? Thanks.

Dave Domzalski: So, I’ll start with the market dynamics. Oren, I mean, one of the ways to really examine the seasonality. There are a couple of ways that we’ve looked at historically. We’ve looked at how search terms are viewed in April – March, April, May versus the rest of the year in rosacea. And we see big spikes, especially around the April, May timeframe. As we’re looking at the NRx volume as of recent weeks and certainly since about the beginning of March, we’ve seen this step up from where it was around 10,000, 11,000 prescriptions in the branded space up to around 14,000 in most recent data weeks. So, we are seeing the throughput of patients increase. This is really the time as the seasons changed, where rosacea patients feel a lot of discomfort in seek treatment. And so we’re taking advantage of that through our digital marketing efforts, and specifically as it relates to search. And also as we’re getting out in the field or as we’re out in the field, seeing our physicians live making sure that they have enough samples to accommodate these patients as they come in.

Matt Wiley: Yes, Oren, I’ll answer the second part of your – answer the second part of your question. We do intend to breakout the product revenues, but we’d like to get through the launch phase of ZILXI first. So it will likely be later this year or maybe next fiscal year, right. But we’re not going to do that in the next quarter or two. It’s just we’re too early in the launch phase.

Dave Domzalski: Yes. And just a follow-up to one of the things that we have is a large number of peer-to-peer educational events around ZILXI scheduled for the next couple of mindset to coincide with some of the increased, but we anticipate with some of the increased patient volumes as seeking treatment for rosacea. So, yes, we’ve got our efforts deployed not just direct field efforts from representatives to offices as they continue to open. But we’re trying to supplement that through a large number of peer-to-peer events, which again, will be ongoing for the next several months.

Oren Livnat: All right. Appreciate it.

Operator: And we are showing no further questions on the audio lines at this time. I’ll turn the conference back over to you.

Dave Domzalski: Thanks operator. And thanks to everyone that joined on the call today to and for the thoughtful questions. We look forward to continuing to provide you updates as we progress our business. I wish everybody a great rest of the week. And look forward to speaking with you soon. Take care. And thank you.

Operator: This does conclude today’s conference call. We thank you for your participation. And ask that you kindly disconnect your lines. Have a good day, everyone.