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Edited Transcript of RLYP earnings conference call or presentation 4-May-16 9:00pm GMT

Q1 2016 Relypsa Inc Earnings Call

Redwood City May 5, 2016 (Thomson StreetEvents) -- Edited Transcript of Relypsa Inc earnings conference call or presentation Wednesday, May 4, 2016 at 9:00:00pm GMT

TEXT version of Transcript


Corporate Participants


* Charlotte Arnold

Relypsa Inc - VP of Corporate Communications and IR

* John Orwin

Relypsa Inc - President & CEO

* Kristine Ball

Relypsa Inc - CFO

* Scott Garland

Relypsa Inc - Chief Commercial Officer


Conference Call Participants


* Christina Ganoy

Cowen and Company - Analyst

* Yigal Nochomovitz

Citigroup - Analyst

* Unidentified Participant

- Analyst

* Irena Koffler

Mizuho Securities - Analyst

* Mara Goldstein

Cantor Fitzgerald - Analyst

* Bill Tanner

Guggenheim Securities - Analyst

* Tim Chang

BTIG - Analyst

* Difei Yang

Brean Capital - Analyst

* Reni Benjamin

Raymond James - Analyst

* Ed Arce

H.C. Wainwright & Co. - Analyst

* Ying Huang

BofA Merrill Lynch - Analyst




Operator [1]


Good day, ladies and gentlemen, welcome to the Relypsa conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded. I will now like to turn the conference over to your host Charlotte Arnold, Relypsa's Vice President of Corporate Communications and Investor Relations. Charlotte, you may proceed.


Charlotte Arnold, Relypsa Inc - VP of Corporate Communications and IR [2]


Good afternoon, everyone and thank you for joining us today. Earlier this afternoon we issues a press release reporting our first quarter 2016 financial results. On today's call we will walk through those results and provide additional updates on our first quarter and then move to Q&A for the remainder of the hour.

Joining me today are John Orwin, Relypsa's President and Chief Executive Officer; Kristine Ball, Chief Financial Officer; and Scott Garland, Chief Commercial Officer. As a reminder, we will be making forward-looking statements including, among other things, regarding the commercialization of Veltassa and our expectations regarding our future operations and results which involve certain risks and uncertainties. And those are more fully describing in our SEC filings which are available on our website. With that, I'll hand it over to John.


John Orwin, Relypsa Inc - President & CEO [3]


Good afternoon, everyone and thanks for joining us today. We're excited to report results for our first full quarter since Veltassa became available in the United States. It's been a productive first quarter for us and we've been focused on executing a successful launch for Veltassa.

We are in a position that few before us have been in, introducing a medicine for a condition that has had no innovation in more than 50 years. Most of the doctors worked hard at it hadn't even started practicing medicine when the last treatment for hyperkalemia was approved. Given that we're working to change the habits of a lifetime, we are pleased with the early reception from doctors, which is reflected in the approximately 2,500 patients who started taking Veltassa in the first quarter. We're also pleased with our execution in this initial phase of the launch and Scott will provide more details on our commercial performance later in the call.

In addition to activities directly supporting the launch, other areas of focus have included clinical work such as the initiation of the TOURMALINE study, which is evaluating Veltassa's safety and advocacy when given with and without food. This study is recruiting well and we expect to have results in Q3.

We have also been undertaking a significant amount of regulatory work, which we have several updates to provide. We were excited to announce last week that our ex-US partner, Vifor Fresenius, has submitted a marketing authorization application for Veltassa to the European Medicines Agency. This submission is a major step towards bringing Veltassa to patients worldwide. We are very pleased to be in a partnership with a global leader in nephrology that has deep regulatory and commercial experience, particularly in Europe, and look forward to continuing to support Vifor Fresenius as the submission moves through the review process.

In the US, we submitted last month an sNDA for DPx Fine Chemicals to be approved as a second supplier of drug substance or API. As a reminder, Soltego is currently the only approved API manufacturer for Veltassa and we have long intended to bring a second supplier on board.

In addition, we are well underway with the preparation of our sNDA requesting a label update for Veltassa based on the results from our positive drug-drug interaction studies in healthy volunteers that we reported in January. This sNDA will request that the six-hour dose separation between Veltassa and other medications be shortened to three hours, that the language currently in the box warning be moved to another appropriate section of the label and that the results of the phase 1 [invoking] studies be added to the label. We remain on track to submit this application by the middle of 2016.

I also wanted to update you on an sNDA we submitted last November, requesting a label change that would allow Veltassa to be stored at room temperature for up to six months instead of up to three months as the current label states. The FDA unfortunately issued a complete response letter for this sNDA. Although we were hoping for a different outcome to provide additional storage flexibility, we do not believe it significantly impacts Veltassa's commercial potential or how patients will ultimately store it. Since most patients receive Veltassa as a monthly supply, we believe storing it for up to three months at room temperature should be adequate. Additionally, Veltassa can be stored in the refrigerator for up to 24 hours.

Before I hand over to Kristine, I wanted to note that we've had a great presence at medical meetings recently, including the annual meetings of the American College of Cardiology, the Academy of Managed Care Pharmacy and the National Kidney Foundation. We presented newest analyses from studies of Veltassa at the NKF meeting last week including data showing evidence of a potential phosphate lowering effect to Veltassa within a small proof of concept studies that evaluated Veltassa's effects on chemo dialysis patients as well as new analyses from our Phase 1 study. We intend to explore this potential effect further.

We also presented data showing that there's very little calcium available to be absorbed from Veltassa. As you know, we designed Veltassa to exchange calcium for potassium avoiding the introduction of sodium as with older medicines.

A set of group analysis from the 52-week AMETHYST study suggested that patients with resistant hypertension taking Veltassa had decreases in blood pressure. As we mentioned before, this is an area we are interested in exploring further.

Finally, we were very honored to receive the National Kidney Foundation's inaugural Corporate Innovator Award. We are proud to partner with an organization like NKF and our shared commitment of improving patient's lives. I will now hand over to Kristine to cover financial results.


Kristine Ball, Relypsa Inc - CFO [4]


Thanks, John. As of March 31, 2016, we had $205 million in cash, cash equivalents and short-term investments and had 44.7 million shares of common stock outstanding. We were pleased to announce yesterday, completion of $150 million debt financing. Including net proceeds from this financing, pro forma March 31 cash and investment totaled approximately $336 million.

The term loan enhances our cash position nicely and was minimally dilutive as the warrant coverage was less than 1% of shares outstanding. Minimizing dilution for this financing was important to us, particularly in light of recent capital market conditions. In addition, there are no loyalties or other payments drained tied to Veltassa in this debt deal.

During the first quarter of 2016, we recognized 790,000 in gross Veltassa product revenue. Of that, we recognized 592,000 in net product revenue. Our gross to net adjustment for the first quarter was 25%. Fixed fees and one-time payments to our specialty pharmacies represented approximately 0.5 of the gross net adjustment. As revenue grows, we expect these fixed fees as a percentage of the gross net adjustment to decrease substantially.

Cooperation and license revenue for the first quarter was $11.8 million, which represents partial amortization of the $40 million upfront payment received in the third quarter of last year from Vifor Fresenius. We expect that approximately 80% of the upfront payment will be amortized by the end of this year, with the majority being recognized in the first half of the year.

Our gross margin for the first quarter was 87%. However, recall that prior to Veltassa's approval, manufacturing costs associated with commercial supplies was recorded as a component of R&D expense. As a result, costs for the first quarter reflect a lower average per unit cost than the full cost per unit.

If we had included the full manufacturing cost per unit in costs, our gross margin for the first quarter would have been 63%. We expect gross margin to improve significantly over time based on process improvements and scale. Operating expenses for the first quarter of 2016 were $67 million, including $8 million in non-cash stock-based compensation. And now, I'll hand the call to Scott.


Scott Garland, Relypsa Inc - Chief Commercial Officer [5]


Thanks, Kristine, and hello, everyone. Since Veltassa was launched in December of last year, more than 1,700 physicians have written more than 5,000 prescriptions. Market research suggest that early clinical experience has been positive with prescribers reporting favorable perceptions of Veltassa's safety and efficacy profile.

In addition, intent to prescribe remained strong with approximately two-thirds of physicians stating that they are extremely likely or very likely to prescribe Veltassa in both the outpatient and hospital settings. We're pleased with this early experience of Veltassa in our progress to date.

However, it's important to point out that we believe most prescribers are still in something of a trial period. Meaning they have written prescriptions for one or two patients and are waiting to see the result before expanding their usage.

Additionally, as with many recent drug launches, we're experiencing headwinds on the payer side that affect our ability to convert written prescriptions to fill prescriptions and may affect demand as well. As John mentioned, we are building the chronic hyperkalemia market and are working to change physicians prescribing behavior. For these reasons, we continue to expect the uptake of Veltassa will take time with monthly variations in prescriptions written and filled.

As previously reported, the first full quarter of our launch, nearly 2,500 new patients, started taking Veltassa via our free starter supply program. 1,155 revenue generating outpatient prescriptions were covered by payers and dispensed directly to patients. We continue to see improvements in conversion of prescriptions written to prescriptions filled month over month, which is obviously a key performance indicator for us as our goal is to get scripts filled as quickly as possible.

Of the 1,155 outpatient prescriptions dispensed, 898 were new scripts and 257 were refills. This refill rate is in line with our expectations at this point in our launch and we expect it to grow as more patients move through their first 30-day prescription and start refilling.

Turning to the hospital channel, sales of our hospital units nearly double each month and altogether, there were 374 units sold to the hospital and other institutions. As we've stated before, it takes time and several months for a hospital P&T committee to make a formulary decision. So we're expecting the majority to make decisions in the latter part of this year. In the hospital setting, our reps are focused on educating P&T decision makers and encouraging committee review at the earliest possible opportunity.

I'll now take some time to walk through the status with payers as we continue to make progress on that front. As you know, in February, Veltassa was added to the CMS formulary reference file and we signed agreements with two largest PBMs, Express Scripts and CVS Caremark and these were important early wins.

We have been focusing our efforts on target national and regional payers that cover approximately 85% of patient lives. To date, approximately half have made coverage decisions for Veltassa and of these, 75% have decided to cover Veltassa in a tier three or better position.

Approximately one-third of target Medicare Part D plans have made coverage decisions and of these, the vast majority have decided to cover Veltassa. We had expected that most Part D plans would have made decisions within six months of our FDA approval date, however, we have since learned that plans can wait until six months from commercial to availability before making a coverage decision.

In addition, while we don't expect them to, plans can petition CMS for more time if they choose to do so. We continue to work with Part D plans and expect to make additional progress over the coming months. Finally, we're very pleased that 100% of state Medicaid plans have decided to cover Veltassa.

Consistent with other recent drug launches, the majority of prescriptions we're receiving, approximately 70% to 80% of them have prior authorizations associated with them. This is slowing the time to fill a prescription and impacting our conversion rate. With enough time, the majority of prescriptions are getting converted to paid prescriptions and our payer rejection rate is around 20%.

We continue to work actively with payers to educate them on the unmet need in the hyperkalemia new market and in the critical role that Veltassa can help in managing this condition. As more of our target payers make coverage decisions and we work to sign agreements with them, we expect time to fill and conversion rate to continue to improve. These payer hurdles were anticipated and our distribution model is to identify and address them.

The overall response to Veltassa Connect, our hub, has been favorable. A third-party survey found that 61% of physicians surveyed rated it above average as compared to similar industry programs. This response is especially encouraging since our target physicians are not accustomed to prescribing through this type of model. Our own market research found that among physicians with significant experience with Veltassa Connect, 77% were either extremely or very satisfied.

Now, I'd like to discuss our promotional efforts. As mentioned earlier, the market response to Veltassa has been strong thanks to great execution by our sales and marketing groups. In addition to the data that I shared before that approximately two-thirds of physicians are likely to prescribe, awareness rates of Veltassa come on target physicians is high at 97% come on nephrologists and 73% among cardiologists. Finally, Veltassa sales representatives continue to be rated highly by physicians on both product and the V state knowledge.

Moving forward, we're focused on driving demand, removing access barriers and ensuring that our distribution and patient support servicing continues to meets the needs of our customers. At the core of any successful launch of a great drug that addresses an important unmet need. I believe we have that with Veltassa and the physicians that have prescribed it, are telling us that as well. The chronic hyperkalemia market represents a significant opportunity, and I'm excited about the potential that Veltassa offers in changing the lives of patients that suffer from hyperkalemia. So with that, I'll turn the call back over to John.


John Orwin, Relypsa Inc - President & CEO [6]


While we're only months into the launch. We're pleased with the early adoption and our execution across the business. We have enhanced our cash position with a minimally dilutive debt financing. We're excited that the European application has been submitted, are on track to submit an sNDA requesting label changes regarding drug-drug interactions and are working toward having a second ATI supplier approved by the FDA. Across the entire Company, we're excited to be in the position we're in at this point. We'll now open up the call for questions. Operator, please go ahead.


Questions and Answers


Operator [1]


(Operator Instructions)

Our first question is from Christina Ganoy with Cowen. Your line is now open.


Christina Ganoy, Cowen and Company - Analyst [2]


Hello. Thank you for taking my question. The first one is on reimbursement. So how much progress do you think there remains to be made for the rest of the year?


Scott Garland, Relypsa Inc - Chief Commercial Officer [3]


Well, as I said on my opening remarks, we've got about half of our target plans that have made coverage decisions. So clearly we have progress to go to get the other half on board. So I think there's still room for improvement on that front and as I said in my opening remarks, I think as we make progress on that, we'll expect to see our conversion rates continue to improve and our time to fill is going to improve as well.


Christina Ganoy, Cowen and Company - Analyst [4]


And would you see most of that play out in Q2? Do you see like substantially improved switch rates in Q2 taking place?


Scott Garland, Relypsa Inc - Chief Commercial Officer [5]


I really don't want to give any forward-looking projections on where we expect things to go. I think it's fair to say and I made a comment on this in my opening script, it is taking longer than we thought to make progress with our payers. As I said, we expected these kinds of hurdles and our distribution model is actually giving us great visibility into these types of challenges. But in terms of how things will progress in Q2 and Q3 beyond, I'd rather not comment on it at this time.


Christina Ganoy, Cowen and Company - Analyst [6]


Okay, and does the compliance rate, and I'll finish here. Can you comment a bit on how compliances are going?


Scott Garland, Relypsa Inc - Chief Commercial Officer [7]


Yes, I mentioned the refills in my opening comments in terms of the number of scripts that were either new scripts or refills. As I said that's generally in line, actually it is in line, with what we expected at this point. It equates to roughly 50% to 60% refill rate at this point, which is about what we could expect for a drug this early. You know, we've always said we're moving physician's mindset from episodic to chronic and we've made some great progress on that. And we expect that refill rate to continue to improve over time.


Christina Ganoy, Cowen and Company - Analyst [8]


Okay, thank...