Earnings call
good morning to everybody joining us today. The clear highlights for Progenics, since our last quarterly call was the approval on July 19th of the oral formulation of our opioid induced constipation therapy RELISTOR. This is a significant milestone for our company. The approval triggered a $50 million milestone payment from Valeant that we received on July 25th and we are also entitled to earn up to 200 million of additional one time sales milestone payments based on U.S. net sales of oral and subcutaneous RELISTOR, in addition to ongoing sales royalties. We believe that the availability of our more convenient tablet form of RELISTOR will appeal to OIC patients and their doctors and were optimistic about the RELISTOR franchise. The RELISTOR franchise continues to support our efforts to advance AZEDRA as well as our prostate cancer pipeline.
Moving on to our development pipeline. First let me update you on AZEDRA, our ultra-orphan radio therapeutic product candidate being developed for the treatment of Malignant Pheochromocytoma and Paraganglioma. Rare cancers found in the adrenal glands. AZEDRA us being developed under a special protocol assessment, or SPA, agreed to with the FDA and has also received orphan, fast track and breakthrough therapy designations from the FDA. We look forward to reporting the top line data from our registrational trial in late 2016, or first quarter to 2017 and if positive we will move quickly towards filing and NDA during the first half of 2017.
AZEDRA is the significant near term commercial opportunity for our company and we intend to retain the rights and commercialize the drug independently in the U.S. The vast majority [indiscernible] patients are treated at 10 to 15 centres throughout the U.S. most of which are sites that are participating in our registrational trial. Our initial assessment has shown that we'll need a commercial team of approximately 10 employees including three to four [MS] sales to launch AZEDRA in the U.S.
Turning now to our prostate cancer pipeline. We continue to execute on our strategy to leverage the full potential of our PSMA targeted agents to find, fight and follow prostate cancer. In May, we announced that we granted fair exclusive worldwide rights to develop and commercialize products combining our PSMA antibody technology with Bayer’s Alpha-Emitting Radionuclides. This transaction provides strong validation through this approach to the development of targeted cancer treatments. Under the terms of the agreement, we received an upfront payment of 4 million and in the third quarter we also received the first $1 million milestone payment related to preclinical development. We're eligible to receive up to an additional 48 million in potential clinical and regulatory development milestones. Under the terms of the agreement we’re also entitled to single digit royalties on net sales and eligible for potential net sales milestone payments up to an aggregate total of 130 million.
Beyond this agreement we’ve continued to advance our clinical development strategy for our imaging agents 1404 and PyL. 1404 is focused on early monitoring applications using SPECT/CT technology to more accurately and noninvasively detect clinically significant prostate cancer, which may assist in enabling after surveillance. We're encouraged by registry data from three different independent sources which were highlighted in the New York Times article in May, which point to an increase in the adoption of active surveillance with 40% to 50% of men with early stage cancer now choosing this approach. Since 1404 is designed to provide a picture of a man's cancer we are hopeful that we can enhance and expand the use of active surveillance consistent with the recommendations from several major research organization. Our ongoing pivotal Phase 3 trial is progressing as plan and we expect to conduct an interim analysis of the data to assess utility and evaluate the need for a sample size re-estimation in the fourth quarter of 2016.
Turning now to Pyl, our PSMA targeted PET imaging agent. This candidate continues to generate great enthusiasm among leading KOLs. PyL is being widely used by investigators in a number of prostate cancer studies with over 200 patients scanned to date. We're on track to initiate a Phase 2, Phase 3 trial of Pyl by the end of the year. The goal of the study will be to assess the diagnostic accuracy of Pyl PET/CT imaging and patients with high-risk and/or metastatic prostate cancer. We believe there is potential utility for Pyl not only in the detection of treatment of current disease that's not picked up by other available imaging modalities, but also in the development of new prostate cancer therapies, particularly given its potential to more accurately assess the location, extent and progression of disease even very small lesions that often evade traditional imaging modalities. Using Pyl, we believe drug developers or academic investigators maybe able to more quickly determine a potential therapeutics clinically utility in a non-invasive manner, and better enable physicians to tailor treatment plans to individual patients.
We're assessing how the best leverage Pyl to support further development of promising therapies in prostate cancer, including amino therapy treatments and combination therapies to target prostate cancer. In addition, we remain on track to initiate a Phase 1 trial for 1095, our PSMA targeted radio therapeutic in the fourth quarter of this year. The study will be conducted at Memorial Sloan Kettering, and we look forward to building on the positive data seen to date in compassionate use in Germany.
And now I’d like to turn the call over to Pat Fabbio, our Chief Financial Officer to review the financial results for the quarter. Pat?
Pat Fabbio
Thank you, Mark. You can review details of our financials in the press release we issued this morning and in the 10-Q, we will be filing shortly, but I will highlight some key key points for you now, beginning with revenue. Second quarter revenue totalled $8.5 million, an increase of $6.5 million over the prior year period. The increase in revenue was due to an increase in collaboration revenue of 5.9 million primarily resulting from our Bayer collaboration and an increase in RELISTOR royalty revenue of $600,000. We recognize RELISTOR royalty revenue of $2.4 million in the second quarter of 2016 reflecting net sales of $15.9 million versus royalty income of 1.8 million in the prior year period.
Second quarter research and development expenses increased by $1.3 million, compared to the prior year period, primarily reflecting higher clinical trial and contract manufacturing cost for AZEDRA, 1404 and Pyl, partially offset by lower expenses from PSMA 83.
Second quarter general and administrative expenses were $5.6 million, a decrease of 500,000 from the corresponding period in 2015, primarily due to lower legal fees. Net loss for the quarter was $5.6 million or $0.08 per diluted share compared to a net loss of $11.7 million or $0.17 per diluted share in the 2015 period.
Progenics ended the quarter with cash and cash equivalents of $60.1 million, a decrease of 14 million from $74.1 million at the end of December 2015. As Mark noted, subsequent to the end of the quarter we received a $50 million milestone for oral RELISTOR for our U.S. approval.
Let me turn the call back to Mark for closing comments.
Mark Baker
Thanks, Pat. With that let me close by saying with our strengthened balance sheet resulting from the 50 million oral RELISTOR approval milestone, we are well position to execute our strategy. We have assembled a prostate cancer therapeutics and imaging pipeline, and we continue to leverage our leadership position in PSMA targeted candidates. We're bringing together imaging agents, therapeutics and analytical tools that we believe will evolve into a new paradigm for the detection and treatment of prostate cancer. With AZEDRA, we have a near term commercialization opportunity with a significantly de-risked trial and an ultra-orphan indication with high unmet medical needs and a clear path to approval. We are very excited about the opportunities ahead and we look forward to updating you on future calls.
Let’s open the call for questions. Operator?
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] And our first question comes from Chad Messer with Needham. Your line is open.
Chad Messer
So with oral RELISTOR approved here and contrary to some people's concern the $50 million cheque from Valeant piece to be cleared. Can you just comment on your feeling about Valeant's readiness at this point? Are they doing everything you want to see them do to get this drug launched?
Mark Baker
Thanks, Chad. Yes, and the cheque cleared, so the $50 million in the bank account. I think we've been encouraged by the changes that have been seen at Valeant's, the hiring of a new CEO hopefully building their commercial focus, many remarked to me that the article announcing the approval of oral RELISTOR was a good news story for Valeant's and we Valeant's Directors' comments favourably on the approval of RELISTOR, so we're hoping and expecting that RELISTOR will be very important to Valeant and they haven’t shown us any hesitations so far. Obviously we are not starting from scratch with oral RELISTOR because subcutaneous RELISTOR is being sold by hundreds of reps, Valeant reps but obviously what we want to see with their oral formulation is step up in their effort and a strong commercial showing. We don’t have details from Valeant's at this point on the launch or the pricing but will be in discussions with them and expect to be learning about that shortly. Chad.
Chad Messer
Great, thanks. And I know it's less of a commercial opportunity but can you maybe update us on how you and Valeant are thinking about Europe, so I mean Movantik did attract the commercial partner over there so clearly there is some interest?
Mark Baker
Yes, so I think that is a high priority for us. I have to say I was waiting for this because FDA approval is significant in Europe, we have not seen in Europe the concerns about opioid withdrawal that slowed OIC drugs here in the U.S. but it's now behind us. So I got to push with Valeant and Valeant has indicated to us that they are happy to have us participate in trying to find ex-U.S. partners for the drug. So that'll be a top priority for us for the remainder of the year.
Chad Messer
And then maybe just one on AZEDRA. Can you walk us through what the kind of final close out procedures are on the trial, so this has been enrolled for a while and it's a six months' end point but are there some follow-ups -- what is it going to take to get the trial done and read out?
Mark Baker
So we're in the response assessment period, you will recall we've got an unusual end point with this trial reduction in the use of heart medication, a responder someone who reduces their heart medication by 50% over six-month period and you measure that six months during a one-year window, so that's the period we are in now, we're watching the patients to see if they are responders and the period could go as long as that full one year. That's why you see us Chad saying some variability about when the period will end. It will depend on how the patients actually do respond. But we expect either right at the end of this year or in the first quarter to have all of that behind us. Our plan would be to announce top line data by press release and then give the scientific presentation at a medical meeting and our NDA team working already to prepare the NDA filing, once we have the full dataset, so the team is saying to me that they are confident we could get a filing in quickly once we have the final data. So that's why you've seen us saying that, we feel that a filing in the first half of 2017 is an excellent possibility with good data.
Chad Messer
I know you said you believe based on your conversations with FDA, you may be able to get a full approval not just an accelerated approval. Can you maybe just comment on a little more on why you feel that way, the end point as you said is a bit of an unusual one and it kind of has [seregate] written all over it to me, but you were the one who's had the conversations with the agency.
Mark Baker
Yes, when we met with the agency we wanted to make sure that this special protocol assessment, the SPA was still in effect and we got a very strong indication from the agency that that was the case and they wanted us to focused on the SPA and while they looked at the data that we presented which I believe lead to our breakthrough designation looking at tumour reduction on resist criteria and looking at overall survival of the patients, they were clear that they wanted to see us perform against this SPA endpoint and I thought that was excellent certainly from the company's perspective, a regulator that keeps the goal post in the same place is something that you value quite highly. So, we're expecting them to stand behind the SPA and if we can give them that de-risked data I think that I'd be very optimistic of getting approvals.
As to the Phase 3 trial, the original SPA calls for a conditional approval to be followed by post approval Phase 3 trial, so when we ask the agency should we get that trial started, their answer to us was that we should wait. So we're interpreting that to mean that the agency always driven by the data, so their plans all subject to the data but the agency was saying to us that if the data is strong they were thinking that it would be possible that we would get full approval. So I took that as a very positive sign.
Chad Messer
Alright, very exciting. Looking forward to getting that data. Thanks.
Operator
Thank you. And our next question comes from Gena Wang with Jefferies. Your line is open.
Gena Wang
Just followed Chad, a question regarding a RELISTOR launch. I know you had a defensive mechanism in place just in case if Valeant does not have a certain number of fill scrap or compensation in place then you will be able to withdraw or pay back the assets on Valeant. So just wondering how long does it need to take for you to make that decision?
Mark Baker
Well, thank you for the question Gena. Yes, in our contract originally with [Salix] now owned by Valeant, there is a specification of minimum number of sales calls and also specifying that the product must be in certain positions within the bag as it relates to compensation of the sales people, so we do have that right. I'm not expecting to use that right and I'm expecting Valeant to exceed the requirements of the contract but in a worst case scenario were that wasn’t the case I think that the way it would unfold Gena would be for us to declare a default under the contract and then exercise our rights under the contract as appropriate. But as I say Gena not expecting that to happen.
Gena Wang
Okay, I singly also hoping it would not happen just like a worst case scenario how it's in particular.
Mark Baker
Yes, right.
Gena Wang
Okay, so for subcu RELISTOR revenue, I mean just a housekeeping question, I know you reported 15.9 million revenues, so I was just wondering how much impact from inventory stocking or destocking?
Mark Baker
Pat, do you want to address that?
Pat Fabbio
Yes, sure. Gena we think that the inventory management agreements that they have with the wholesalers now where they have contracts which govern roughly one to two months of inventory is starting to even out the return level though there is always some lever returns, so we think this is getting to a more normalized type of sales that's more in line with the actual demands of profit.
Gena Wang
Okay, thanks and last question. I think you mentioned that you will start a Phase 2, 3 trial for Pyl by yearend, just wondering, if you could elaborate the trial design that you have in mind for example like the number of patients, end point and statistic assumption?
Mark Baker
We've had some discussions with the FDA about that Gena. I think that one clear thing from the FDA is that they want us to establish the specificity and sensitivity of Pyl against actual tissue taken from [the man]. We do that with our 1404 agent, which is focused on early stage prostate cancer by comparing the scan to they remove prostate and then who have decided to have their prostate removed in our radical prostatectomy. With the Pyl agent we'll be looking to get tissue both of the prostate but also a metastatic disease, but inherently a thing that we must prove to the FDA is the specificity and sensitivity compared to that true standard exceeds 60-60 and so that will be our goal on the Pyl trial.
Gena Wang
And also like number of the patients you have in mind?
Mark Baker
Yes, we haven’t nailed that down. I think that you may see it be similar to what we're looking at what was 1404 in that 450 patient range. Pyl has been in a fair number of patients through work at Johns Hopkins and through trials and by numerous investigators around the world, some of them making Pyl themselves [indiscernible]. So, we're building a good database, Johns Hopkins has done excellent work in this area and continuing to do this. This Phase 2, Phase 3 trial will really represent Progenics working in a multicenter approach and we're hoping we don’t have a commitment from the FDA, but we're hoping that this could be a registrational trial and will be working and discussing that with the FDA, as our plans become more final.
Operator
Thank you. Our next question comes from Umer Raffat with Evercore ISI. Your line is open.
Umer Raffat
I had a few question if I may. So on oral RELISTOR so we noticed there is an outcome trial requirement from FDA. Is that something that would have to be as largest as Movantik's ongoing 8,000 patients trial? And then also my understanding is subcu RELISTOR is also supposed to be doing an outcome trials, but I don't see one clinicaltrials.gov, so I just want to understand that. And then finally, how much does this trial cost? Thank you.
Mark Baker
Well the trial cost us nothing because Valeant is responsible for all payments, so it's not going to be a burden on us and I don’t have a cost estimate from Valeant on these trials. I'm not familiar with potential for subcu trial so I don’t think I can address that and we don’t have information from Valeant on what they are going to do with the oral trial, but it's their responsibility.
Umer Raffat
Got it, thank you very much. And then perhaps if I may ask one more, it's my first time on a Progenics call so, I'm just curious and this is something you may have address many times over the years but, how do we think about the 150 milligram dose in three separate tablets, once they leave the three tablets versus Movantik's dose just once like. What's the commercial feedback you've gotten on this topic?
Mark Baker
What I heard is that this shouldn’t be a problem. I don’t think any adult has a problem swallowing a pill and taking three pills, I don’t think it is a burden at all.
Operator
Thank you. [Operator Instructions] Our next question comes from Jonathan Aschoff from Brean. Your line is open.
Jonathan Aschoff
Good morning guys, and congrats again on that long awaited approval of oral RELISTOR. I was wondering what might be the differential message of Valeant versus AZEDRA with Movantik and a second RELISTOR question would be on, have you furthered any talks with Valeant about potentially altering that 60/40 ex-U.S. deal you struck initially with Salix?
Mark Baker
On the second question, no there has been no discussion on changing the 60/40 deal. We have been talking about how could we get RELISTOR in other geographies as I mentioned and Valeant said that they would be happy to have us work with them to identify partners but no, they haven’t suggested any change in the 60/40. [Multiple Speakers]
Jonathan Aschoff
Okay, and then the differential message perhaps? Yes, differential message with oral RELISTOR versus Movantik?
Mark Baker
Yes, I think for us it's always about the onset of action of RELISTOR and the patients that do respond to it, obviously those messages will be crafted by the commercial team and to Valeant and reviewed by the regulatory team, so I don’t think I can give you insight today on exactly what the commercial messages would be, but I would expect that convenience, predictability and onset of action will be among the themes that they will want to work with.
Jonathan Aschoff
Okay, you had mentioned in response to an earlier question about position in the bag about what could make them make you able to take back the asset but what else is in the bag?
Mark Baker
For RELISTOR?
Jonathan Aschoff
Right, so what else is in the sales person's bag at Valeant selling RELISTOR?
Mark Baker
Well, they have three sales forces we understand it working on promoting RELISTOR, two of them, the old Salix GI in the sales forces and I'm not up to date specifically on what they have in their bags but certainly it would include [Indiscernible] and then a pain salesforce where we've been told that just RELISTOR is in the bag really. So we'd like the positioning of the subcu and we like the effort that Valeant has made on the subcu, we've had no complaints about that and I think what I was saying earlier is we're just hoping and expecting Valeant to step up their gain with the new oral form, we see a really strong effort with Movantik's promotion and we're hoping that Valeant can step it up because that will be the competition Movantik for sure.
Jonathan Aschoff
Aren’t you expecting more bang from the pain sales force not just because it's the only drug in the bag but because the orientation of that message?
Mark Baker
Yes, when Valeant first told me that they were setting up the pain sales force they hadn’t even asked me about it they just did it shortly after they acquired Salix. I thought that was a great commercial move and I think it's paying off for them, the data that we see that shows that was a positive step, so I definitely would like to see that continue.
Jonathan Aschoff
Okay, with the extra 50 million you just got, are you more inclined to acquire additional cancer drugs or diagnostics or are you kind of set for the time being with what you have?
Mark Baker
I would like to grow this company, I think it has sort of great potential for growth as you look at our pipeline you see that it's coming to us on conclusions which is a wonderful thing, with AZEDRA in its registrational trial, with 1404 in its registrational trial you see me trying to be as efficient at building the companies we can, I thought the fair deal was a good example of us leveraging our technology at zero cost to ourselves so some of our assets here like RELISTOR, like the collaboration with Bayer we're putting no money into, hopefully I've shown the market with my acquisitions that we're very price sensitive and we're patient and disciplined to acquire assets at quite reasonable prices and we continue to look for assets like that.
So yes, I guess with 50 million in the bank, perhaps that would give us a little bit more confidence but really we’re acquiring assets not based on our bank account but we're acquiring them based on do we think there is a great potential oncology asset there that for whatever reason has gotten stuck. So we're going to continue to look for that will be disciplined but I don’t see Progenics as a static case and we are a dynamic company we're on the cusp of becoming commercial. We've just moved to new offices that I think reflect where the company now is and I would like to build in a responsible way.
Jonathan Aschoff
Okay, so just on that thought of cusp of commercialization AZEDRA peer list drug, so what I kind of want to ask is what exactly do you need to ask a doc to confirm [CO] versus then just measuring BP and treating the patient like a CD patient, will docs likely treat the BP first because it's just easy and quick, almost always doing that before bothering to assess [indiscernible] or how do you kind of envision compelling the docs maybe look for it sooner if there is some sort of signal that they can see they compel them to do that.
Mark Baker
Our market research shows that currently the patients are mistakenly treated as patients with heart disease. And in fact significant number of patients go undiagnosed to the end of their life, so a confirmation of [fio] which is a secreting tumor is typically done by looking for those secretions. So the diagnosis can be a difficult one and it doesn’t come in the normal course, [fio] being so rare, so definitely part of our marketing this is just orphan drugs 101 will be to build awareness among those who will have to diagnose [fio] and in particularly among the cardiologist and the endocrinologists I think that will be a strong focus. When that patient is actually diagnosed with [fio] they move to major centers typically and then they are under the supervision of the tumor board, so with diagnosed patients our commercial focus will be on those tumor board members, who are making all the decisions about treatment in the area of neuroendocrine tumor research [Indiscernible] which are often treated similarly at many institutions.
Jonathan Aschoff
Okay, lastly I just don’t know if you have answered this earlier and AZEDRA next trial size if you had to run it for a full approval, where would that roughly be for patients' number?
Mark Baker
Probably it would be around where we are with the current trial, I think we ended up with 68 in the current trail.
Jonathan Aschoff
68, okay. Alright, thanks Mark, thanks a lot.
Mark Baker
Thanks Jonathan.
Operator
Thank you. And I’m showing no further questions at this time. I would like to turn the call back to Mark Baker, for any closing remarks.
Mark Baker
Just to say thanks to everybody for participating today and have a good day.
Operator
Ladies and gentlemen, thank you for participating in today’s conference. This does concludes today’s program. You may all disconnect. Everyone, have a great day.
