Talphera, Inc. Q1 FY2024 Earnings Call

Welcome to the Talphera First Quarter 2024 Financial Results Conference Call. This call is being webcasted live via the Events page of the Investors section of Talphera's website at www.talphera.com. This call is the property of Talphera, and any recording, reproduction or transmission of this call without the express written consent of Talphera is strictly prohibited. As a reminder, this webcast is being recorded. You may listen to a replay of this webcast by going to the Investors section of Talphera's website. I would now like to turn the call over to Raffi Asadorian, Talphera's Chief Financial Officer. Please go ahead.

Thank you for joining us on the call today. This afternoon, we announced our first quarter 2024 financial results and associated business updates in a press release. This press release can be found within the Investors section of our website. With me today are Vince Angotti, our Chief Executive Officer; and Dr. Pam Palmer, Talphera's Founder and Chief Medical Officer. Before we begin, I want to remind listeners that during this call, we will likely make forward-looking statements within the meaning of the federal securities laws. These forward-looking statements involve risks and uncertainties regarding the operations and future results of Talphera. Please refer to our press release in addition to the company's periodic, current and annual reports filed with the Securities and Exchange Commission for a discussion of the risks associated with such forward-looking statements. These documents can also be found on our website within the Investors section at www.talphera.com. I'll now hand the call to Vince.

Thank you, Raffi. Good afternoon, and thank you for joining us on the call. Today, I'll provide a status update of our NEPHRO CRRT study evaluating nafamostat's use as an anticoagulant in the extracorporeal circuit. Later, we'll provide some other corporate updates, and Raffi will update you on the financial results for the quarter. And since our last call was just two months ago, we'll keep our prepared remarks brief so we can move directly to any questions you may have. Before we begin, I'm thrilled to welcome Dr. Shakil Aslam to the Talphera team as our new Chief Development Officer, effective May 20. Dr. Aslam has over 20 years of clinical research experience specializing in the field of nephrology. He'll support Dr. Palmer and the rest of the team in the development of Niyad and support the preparation of Niyad for commercialization. Dr. Aslam joins us from BioCryst Pharmaceuticals, where he was the Vice President, Clinical Development, Nephrology and Rare Diseases. He has held development roles at Angion, Fresenius and Amgen and was an assistant professor at Georgetown University Hospital for 11 years with a focus on clinical services with acute and chronic kidney disease, hypertension, renal transplantation and other nephrological diseases. His extensive experience across industry and academia as a renal expert is impressive and is a true asset to our organization. Welcome, Dr. Aslam. Now moving to our study update. As a reminder, this FDA-agreed registrational study will enroll only 166 patients at up to a limit of 10 sites. Once sites are activated, we expect enrollment and completion of the study will be rapid, particularly since the design of the study calls for the primary endpoint to be achieved within 24 hours, with a patient completed after only 72 hours. We have finalized the negotiation of clinical trial agreements with 5 large academic institutions and just await these sites to finalize their internal administrative activities prior to beginning patient enrollment, which is expected to start this quarter. We're also advancing clinical trial agreements with the 5 remaining potential sites. The principal investigators informed us that they remain eager to initiate the NEPHRO study and that they continue to believe the trial will be quickly enrolling. These PIs estimate that up to 80% of their patients currently on CRRT would meet the inclusion criteria in the study protocol, and they continue to support us in our efforts with their respective administrations to finalize their institutions' requirements. Furthermore, the number of patients receiving CRRT continues to increase as evidenced by our quantitative market research published in the journal Renal Failure, estimating the number of patients undergoing CRRT has increased by roughly one-third since COVID and remains at this heightened level. Therefore, we don't believe patient availability will be a concern that limits enrollment. As stated in today's press release, as a result of the initial administrative delays, we expect that our previous guidance of having top line data available by September 30 will be revised. Once patients begin enrolling, we plan to provide an update on our expected study completion and PMA filing dates. Importantly, with the PIs' feedback about rapid enrollment, a 24-hour primary endpoint and a 72-hour timeline for patient completion, we expect the timeline for a PMA filing will not be significantly delayed. And we plan to provide new estimates once we have better information available. Now separate from the NEPHRO trial, we continue to make positive advancements in our manufacturing and related efforts for Niyad. All active ingredient and finished drug production to date have met our specifications. We are now in the process of collecting extended stability data on our GMP-grade product to support shelf life for commercial launch. Our manufacturing partners have done an excellent job achieving timelines, specifications and the cost expectations we've set for them. We're excited to continue to work with them as we prepare for commercial launch expected in 2025. To gain further insight beyond the market research already performed, we recently completed some additional qualitative market research with a group of nephrologists, intensivists and pharmacy directors on the attributes of nafamostat. These participants emphasize nafamostat's strong safety profile over the past 30-plus years, particularly for patients with liver impairment or contraindications to heparin and citrate. Specifically, the participants commented on nafamostat's safety attributes such as its ultra-short half-life, allowing it to be rapidly cleared from circulation and potentially avoiding unwanted complications seen with longer-circulating agents such as heparin and citrate. In addition, the research continues to support uptake of Niyad at a competitive price to the total cost of citrate anticoagulation. This total cost to citrate anticoagulation includes the cost of calcium and the required monitoring of calcium levels. Importantly, the additional market research reinforces our belief in the estimated peak market sales potential for Niyad exceeding $200 million across CRRT and intermittent hemodialysis. Our initial focus is on CRRT, and the estimated peak market sales potential approximates half of this amount or $100 million. On the IP front, we filed multiple patent applications for the Niyad product candidate in the U.S. and other major pharmaceutical jurisdictions worldwide. During and after study completion, we expect to continue to pursue additional patent rights to enhance our patent position. In addition to our focus on Niyad development during the quarter, we successfully closed on two separate transactions to fund this development. Two existing investors led by Nantahala Capital Management supported the company with $18 million in total proceeds, structured with $6 million at the first close early in the quarter and $12 million in committed capital at the second closing after achieving the pivotal trial milestone. Importantly, Nantahala remains supportive and committed to ensuring Talphera has adequate funding to reach PMA approval of Niyad. Given the potential extension of the original timeline, this support is highly appreciated. Also during the quarter, we agreed to partially monetize the DSUVIA royalty and milestone streams with Xoma Royalty, which provided us with $8 million in cash to focus on Niyad development. This non-dilutive financing allows us to participate equally in certain royalties and the milestones after Xoma has achieved their specified return. And now before I hand the call to Raffi, I wanted to mention that last week, we received the court's order in the class action securities litigation granting our motion to dismiss with prejudice on all claims. We're pleased the court has granted the motion to dismiss. And while it's taken a long time to receive this order and the plaintiffs have an opportunity to appeal the order with a higher court, we're happy with the outcome.

Thank you, Vince. After completing the Xoma Royalty transaction in January, all DSUVIA royalties and milestones earned will be paid to Xoma until they reach their agreed return. There were no revenues recorded during the first quarter. Royalties earned on commercial DSUVIA sales going forward will have no revenue impact due to the accounting for the transaction. Further, we have recorded a $6.3 million liability on our balance sheet related to the transaction, even though there was no recourse to Talphera or obligation to repay the proceeds received from the transaction should DSUVIA sales not result in achievement of the agreed return. Our cash operating expenses or combined R&D and SG&A expenses in the first quarter, excluding non-cash stock-based compensation of $0.3 million, totaled $3.9 million compared to $4.8 million last year. The decline from 2023 is due to the reduction in headcount and other costs related to DSUVIA that was divested in April 2023. Full year 2024 cash operating expenses are expected to be at the lower to middle end of the previously provided range of $21 million to $23 million. Cash and investments totaled $18.6 million at the end of the first quarter. As mentioned earlier, we completed two separate financings during the quarter: $8 million received from partial monetization of our DSUVIA royalties and milestones and $6 million received from the first closing of our equity financing with Nantahala and Rosalind. The second closing of this equity transaction is committed upon the achievement of the pivotal trial milestone. While the delay we have experienced in initial enrollment may impact the timing of the completion of the clinical trial and therefore the achievement of the pivotal trial milestone, our lead investor, Nantahala, has expressed their continued financing support as required to ensure the company is appropriately funded through at least an approval of Niyad. We are grateful for the commitment demonstrated by Nantahala as we aim to rapidly enroll and complete the Niyad study.

I'll now turn the call back to Vince. Thank you, Raffi, and I'd now like to open the line for any questions you might have. Allan?

Your first question comes from Ed Arce of H.C. Wainwright.

Let me add my congratulations to Dr. Aslam. I have three questions for the team. First, regarding the timeline delay, you mentioned that the PMA filing delay would not be significant. Currently, out of the 10 possible sites, you have finalized agreements with 5. Can we reasonably expect top line results this year? That's my first question. Second, about the opportunity size in CRRT, you noted that CRRT has increased by about one-third since COVID and has remained elevated. Could you provide a range or quantify the numbers we are discussing in terms of those procedures? Lastly, concerning the cost for Niyad, specifically the price, you referred to the total cost of citrate. Could you quantify this further, either with a point estimate or a range?

This is Vince. We'll take each of those three in sequence. From the time delay, again, we don't expect significant delays. I know I'm repeating what has already been commented, but we hope to provide better guidance on our next earnings call. I think something that's important you've continued to hear as a theme on this call is the rapid enrollment and how the PIs continue to communicate that to us. Just to give you an order of magnitude of the size of some of these sites, Dr. Palmer has spoken to or been at many of these sites. Dr. Palmer, can you just talk about the number of machines some of these sites have and the fact that on the high end of those numbers, those sites are actually involved with the first 5 we finalized agreements with?

Yes. These are all large academic institutions. I mean some of them have over 30 CRRT machines. So they're massive, massive ICUs, a large number of beds, plenty of CRRT going on. They just feel like patients qualifying for this study is not going to be a limiting factor. And so we definitely have enrollment scenarios that do have us playing into what you mentioned as far as top line still this year. That's absolutely within the realm of our enrollment scenarios.

And Ed, I think importantly, on average, this was an interesting data point for us. When you look at all 10 sites that we either have ready to go or in the process of ready to go, about 20 machines per site, CRRT machines. And again, some sites have over 30 machines. And some of those larger sites are already involved with those initial 5 we've identified. The second question, I want to be sure we understand what you're asking relative to CRRT and the $100 million in the range of procedures. Can you question that one more time, Ed?

Yes, I think you were referring to the number of procedures annually and that since the start of COVID, it's up one-third. So are we to assume it's 133 million a year or...

I want to reassure everyone that this study will be quickly enrolled. There is no decrease in CRRT procedures and there are sufficient CRRT machines available at major academic institutions, meaning the study will not take a long time to complete. Through our discussions with the principal investigators, we believe this study will rapidly enroll. It’s important to note that there are 165,000 patients undergoing CRRT procedures, which is growing at a steady pace. While it's not increasing at a rate of 33% year-over-year, COVID did have an effect on the number of procedures.

And that $100 million was the same estimate we had post-COVID when we realized that the number of procedures had increased, so we're reiterating that.

Yes. So there's been no change to the market for CRRT specifically.

And then Raffi, Ed's third question was about the comment we made off of the market research reinforcing the customer's perspective that competitive pricing would revolve around the total cost of anticoagulation with citrate. Can you comment further on that for Ed, please?

Yes. We previously mentioned that based on our recent primary market research, which included a qualitative study, we have concluded that the price of nafamostat will be set at a level comparable to, or approximately 10% higher than, the cost of citrate. This citrate cost takes into account the expenses for the calcium that needs to be administered as well as all necessary monitoring. We have not factored in additional costs for human resources, nursing, and other expenses, focusing solely on these direct costs. Consequently, we estimate the price of nafamostat will be around $47 to $49 per vial. We will continue to refine our pricing and prepare for the commercial launch throughout this year, but this is our current pricing outlook.

Your next question comes from James Molloy of Alliance Global Partners.

I would like to understand the primary reasons for the delay. Are there one or two specific factors, or is it a combination of issues that have been complicating the situation? I believe once it is operational, it will progress quickly, so our focus remains on getting it going. Regarding operational expenses, they are in good range right now. What kind of changes should we anticipate as the trial begins in 2024? I have a follow-up question after that.

We'll have Dr. Palmer start, Jim, with the examples of the delays. Raffi will handle the OpEx.

Yes, there are consistent factors at play. The budgeting and contracting offices of these large institutions are understaffed and have many tasks requiring their attention. Fortunately, we've been in line for some time, and as you heard, we've already finalized half of our CTAs. Besides CTAs and budgets, we also need to focus on nurse education and pharmacy work to facilitate the handling of investigational products and integrate them into their systems. Each site has common and unique factors to consider. Clinical trials are always challenging, especially in large academic institutions, but the enthusiasm from the principal investigators and the high demand for anticoagulation in CRRT suggests that we are moving past the difficult stages of this clinical trial, and we expect progress to be much more straightforward soon.

Second question, Raffi?

Yes. The operating expenses for this quarter were $3.9 million on a cash basis. For the full year, we expect expenses to be in the range of $21 million to $23 million, and we will likely end up in the $21 million to $22 million range. You can see that expenses will increase slightly as the clinical study starts enrolling participants more quickly. This aligns with the guidance we've provided, but it's likely to fall toward the lower to mid part of that range.

That's very helpful because I heard the $21 million and $23 million figures, and I was unsure about what you were referencing earlier, so thank you for clarifying that for me. Regarding Ed's earlier question, you mentioned the $47 to $49 per vial. Can you provide a rough estimate of how many vials per patient you expect to use? Also, I recall that during the KOL call in December, the key opinion leaders estimated that if approved, nafamostat could potentially replace 30% of the citrate market in CRRT and nearly half of the heparin market. It seems you may have conducted additional research on this. How have those estimates changed or remained the same based on what you have observed since last December's KOL call?

Yes, I can take the first part of that on what the assumption is that we use in terms of number of days. And so we've assumed about 10 vials a day and 6 days on therapy, so it ranges 5 to 7 days on a CRRT therapy. So yes, 10 per day and about 6 days of therapy is what we've assumed. That good?

Yes.

The comment addressed the replacement of citrate and part of heparin, which has been consistent feedback. We are maintaining measured communications about the peak sales target of $100 million. Different physicians have varying practices; some institutions adopt a standard of care that excludes anticoagulation due to concerns about heparin and citrate being unsuitable for this application, as well as the training and risks they present for patients. Conversely, some institutions use citrate as their standard of care, although it has its limitations, particularly concerning staff training and its unsuitability for patients with compromised liver function. If our study meets the expected outcomes based on 30 years of use outside the U.S., there will be a clear opportunity for simplification. Heparin has been a longstanding option with a history of use, but it's often employed at risk, particularly in fragile ICU patients who have high bleeding risks and significant mortality rates. Different institutions might have varying opinions on dosage needs, but there is a pressing medical need for alternatives. Our guidance of $100 million remains unchanged, but the interest in this product is remarkable. In a recent call with one of our large academic institutions, the enthusiasm from the principal investigator and the entire nephrology and intensivist teams regarding our product's safety profile compared to their current heparin standard was notable.

Sorry, there are no further questions at this time. I would hand over the call to Vince Angotti for closing comments. Please go ahead.

Again, thank you to Ed and Jim for being on the call today and the continued interest and sharp questioning relative to our commentary. I also want to thank the balance of you for joining us today and your continued support. Look, we remain absolutely focused on driving long-term shareholder value, especially on the execution of the NEPHRO study to make Niyad, which we certainly believe is a very promising product candidate, available to patients. It can have a real change in standard of care for these patients undergoing CRRT. If you have any additional questions after the call, please don't hesitate to contact us through our investor line. And we certainly look forward to sharing with you our future developments and progress. Allan, thank you for the call.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.