Marinus Pharmaceuticals, Inc. (NASDAQ:MRNS) Q4 2022 Earnings Call Transcript

Marinus Pharmaceuticals, Inc. (NASDAQ:MRNS) Q4 2022 Earnings Call Transcript March 7, 2023

Operator: Greetings everyone and welcome to the Marinus Pharmaceuticals’ Fourth Quarter and Full-Year 2022 Financial Results and Business Update Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. It is now my pleasure to introduce your host, Sasha Damouni Ellis, Vice President of Corporate Affairs and Investor Relations. Please go ahead.

Sasha Damouni Ellis: Thank you and good morning. With me from Marinus are Dr. Scott Braunstein, Chairman and Chief Executive Officer; Christy Shafer, Chief Commercial Officer; Dr. Joe Hulihan, Chief Medical Officer; and Steve Pfanstiel, Chief Financial Officer and Chief Operating Officer. Before we begin, I would like to remind everyone that some of the statements we are making today are forward-looking statements under the securities laws. These forward-looking statements involve substantial risks and uncertainties that could cause our clinical development programs, future results, performance or achievements to differ significantly from those expressed or implied by such forward-looking statements. These risks and uncertainties and risks associated with our business are described in the company’s reports filed with the Securities and Exchange Commission, including Form 10-K, 10-Q and 8-K. I will now turn the call over to our Chief Executive Officer, Scott Braunstein.

Scott Braunstein: Thank you, Sasha, and welcome to our call. In 2022, we continued to make important progress advancing our oral and IV ganaxolone programs driven by the cross-functional commitment of the Marinus team. At the forefront of our achievements was the landmark U.S. approval of ZTALMY in March, and the subsequent commercial launch in late July. ZTALMY represents the cornerstone of our rare epilepsy franchise and its U.S. approval validates our belief in the potential of ganaxolone’s differentiated mechanism of action and our ability to grow the commercial franchise. Importantly, we are pleased to report our first full quarter of sales, which are reflecting robust demand and give us confidence we are meeting the needs of this underserved patient population.

Christy will provide further details on our commercial progress, including key launch of metrics and an update on payer coverage. In parallel with our first product launch, we made significant progress advancing our broader clinical pipeline, including our second-generation formulation program and our two critically important pivotal trials for both the IV and oral franchise. We remain focused on expanding the value proposition of ganaxolone for rare epilepsy and believe that a second-generation formulation is an important piece of that puzzle. We are pleased with the early data we have seen in our Phase 1 dosing studies, which Joe will discuss shortly and look forward to seeing this program advance through the clinic. In a very short period of time and with a focused investment we now see a new and expanded pathway for the oral ganaxolone franchise.

Although it is early, we are also on track to replicate this developmental success with a second-generation IV formulation. Furthermore, we believe that the adjustments made to support recruitment and enrollment in the Phase 3 RAISE trial in refractory status epilepticus are trending positively and we’ve been met with enthusiasm by a growing number of participating sites. Just this month, I have met live with key investigators from Tampa, Baltimore and Boston and they are highly motivated to participate given the unmet medical need in this life-threatening condition. The protocol amendment has been fully implemented and top line results continue to be expected in the second-half of 2023. I would like to also acknowledge that the other IV programs RAISE II in RSE for European registration and reset in established status continue to press forward.

While all three trials progress, we will continue to focus our primary efforts on RAISE, the U.S. pivotal program and have begun the commercial investments that we believe can help drive a successful U.S. launch. Let’s move on to the current oral franchise, we are working closely with the TSC community and will continue to raise awareness around the Phase 3 TrustTSC clinical trial, which is now recruiting in the U.S. and Europe with additional site activations expected over the coming weeks and months in Canada, Israel, Italy, Belgium, Australia and China. Last week, Marinus participated in a panel discussion hosted by the TSC Alliance and we will use these types of forms to continue to educate the community about this clinical trial. One that we believe is first of its kind in a highly refractory TSC population.

As we’ve learned with CDD, efficacy and tolerability are key attributes to success in the refractory epilepsy population. And we are confident that changes to the titration schedule give us the maximal opportunity for a successful Phase 3 outcome. We remain on track to disclose top line data in the first quarter of 2024. I would like to provide an update on the status of the ZTALMY marketing authorization application in Europe. We submitted our day 120 responses to the EMA in November. We received the day 180 report, including a list of outstanding issues in January. The list contained a number of major objections, including our choice of regulatory starting material, which is expected to be the biggest hurdle in bringing this medicine to patients in Europe.

The formulation of ZTALMY recently approved in the U.S. contains the same starting material. The CHMP is expected to present its opinion on the MAA in the second quarter of 2023. We remain committed to working closely with the EMA, the advocacy community and our partners at Orion Corporation to advance this important medicine. There remains a broad global opportunity for ganaxolone. We announced a collaboration with Tenacia Biotechnology in November 2022 for the development and commercialization of ganaxalone in China. Tenacia has moved quickly on the regulatory front and as a result of our combined efforts, we plan to include Chinese sites within the TrustTSC trial. Development plans are also underway to maximize the RSC opportunity. We continue to explore additional ex-U.S., commercial alliances, including the MENA region in Japan and expect to expand the commercial footprint of ZTALMY in 2023.

Before I hand it over to Christy, I want to share some exciting news. We received a notice of allowance from the U.S. patent and trademark office on March 1st for additional claims related to our clinical therapeutic regimen for the treatment of status epilepticus using IV ganaxolone. This would be our second newly issued patent for the IV franchise. We believe the allowed claims will strengthen our IP portfolio in our status epilepticus program. Additionally, as many of you know, Steve Pfanstiel since joining the organization nearly two years ago, has played an integral role in the launch of ZTALMY helped strengthen our balance sheet and has been an important contributor to our strategic planning. He established himself as a leader within the organization and has driven a number of important agreements since taking over as Chief Financial Officer.

I am pleased to share that Steve will now be taking on the expanded role as Chief Operating Officer in addition to his responsibilities as CFO. Finally, we are pleased to announce the appointment of Christine Silverstein to our Board of Directors and Audit Committee in January. Christine brings a deep capital markets background and extensive expertise in corporate strategic planning, business development, compliance and risk management. Her financial and strategic acumen combined with her experience in neurology and rare diseases make her an outstanding addition to the board. Now, I would like to turn the call over to our Chief Commercial Officer, Christy Shafer, for updates on the commercial launch of ZTALMY.

Christy Shafer: Thank you, Scott. I’m pleased to provide you with an update on our continued progress as we execute on the U.S. commercial launch of ZTALMY. As a reminder, we launched ZTALMY on July 28, 2022 and generated $560,000 dollars in initial net product revenue in the third quarter. In the fourth quarter, the first full quarter following launch, ZTALMY had net revenues of $2.3 million, bringing the total for the fiscal year ended December 31, 2022 to $2.9 million. We received over 40 completed CDKL5 deficiency disorder prescription enrollment forms in the fourth quarter of 2022 and over 90 total completed CDD prescription enrollment forms for the fiscal year ended December 31, 2022, inclusive of clinical trial patient transitions and naive commercial patients.

We continue to see a steady build of treatment naive commercial patients and a healthy distribution of prescriptions from Centers of Excellence, large epilepsy centers and local community physicians, with prescriptions coming from a growing and diverse prescriber base of more than 60 unique accounts. Since launching the ZTALMY, we have been particularly encouraged by the progress the team has made with market access. More than 75% of CDD patients with completed enrollment forms were able to receive reimbursed therapy by the end of 2022. And most of these prescriptions were filled within 30-days or less. We are pleased to announce that as of February 28, 2023, total payer coverage for ZTALMY increased to approximately 220 million lives, including both commercial and government programs.

ZTALMY has received favorable coverage determinations from 35 payers representing close to 125 million commercial lives, which represent 79% of commercial plans. We expect most of the remaining coverage statements in the first-half of 2023. Medicaid access has been confirmed in all U.S. States as well as Washington D.C. and Puerto Rico, representing approximately 95 million lives. We believe this early success speaks to the strength of our market access and patient services capabilities, as well as an appreciation for the unmet medical need and an impact of the disease on CDD patients and their families. We continue to see a steady build of treatment naïve commercial patients and a healthy distribution of prescriptions from both COEs, large epilepsy centers and local community physicians.

We are delighted with the response and feedback we have received from the patient community regarding Orsini specialty pharmacies, white glove approach, and dedication to supporting patients and families throughout their treatment journey. Thus far, the average patient maintenance dose is approximately 50% above the initial titration dose, which is in line with our label and expectations. Based upon our experience to-date, we have not seen anything in the market a place that warrants us to change our forecasting structure. We have seen a handful of adult and young adult patients being treated, consistent with the broad uptake in patients two and above. Our momentum has benefited from the strength of our digital marketing tools, publication strategy and robust education and awareness efforts ahead of and following launch.

We see continued steady engagement rates on our ZTALMY patient and healthcare provider websites, which confirms the effectiveness of our authentic patient centric marketing approach. The field interactions are being supported by the launch of our Speakers’ Bureau and the execution of a significant number of programs that have been well received with great attendance. We plan to expand the ZTALMY Speakers’ Bureau to add more clinical voices to the CDD treater community filling a need for peer-to-peer education of the ZTALMY clinical data, CDD diagnostic indicators and the importance of early diagnosis. With the solid foundation we have established, we are well positioned and extremely excited to grow our promotional strategies in several ways in 2023.

The CDD diagnostic journey is one area where we think we can offer meaningful support for healthcare providers and families and we continue to further our understanding of the current CDD genetic testing and diagnostic paradigm in the U.S. These insights will help inform our next steps to support unencumbering the CDD diagnostic journey and determining our expanded offering of education, tools, resources and solutions. Planning has also commenced to activate a caregiver ambassador program to share experiences of families who have initiated treatment with ZTALMY and what that experience has meant for their loved one and their families. These stories are planned to be incorporated into our branded promotion along with a webinar series for the CDD community that also features healthcare providers, who can educate on the clinical profile of ZTALMY.

We feel there are many opportunities to continue to grow our brand and we are committed to supporting CDD families in meaningful ways throughout the year. We are very pleased with our early launch progress and are grateful for the impact we believe we are making on CDD patients and families. I’ll now hand the call over to our Chief Medical Officer, Joe Hulihan to discuss our ongoing development programs.

Joe Hulihan: Thank you, Christy, and hello, everyone. In addition to the strong commercial progress, we’ve made in 2022, we continued to generate consistent and compelling data that highlighted the potential of ganaxolone’s differentiated mechanism of action and its safety and efficacy profile to benefit patients, including two-year open label extension data in CDKL5 deficiency disorder. Over the course of the year, data from our clinical portfolio were presented at major medical meetings, including the annual meetings of the American Epilepsy Society, Neurocritical Care Society and Child Neurology Society. Also results of our studies were published in top tier medical journals, including Lancet Neurology and epilepsy. Most recently, the results of the Phase 2 placebo-controlled study of oral ganaxolone in PCDH19 related epilepsy were published in epilepsy research.

Ganaxolone led to a greater median reduction and seizure frequency compared to placebo and was generally well tolerated. If you recall, we reduced the scope of this study to a proof of concept for several reasons. Though the study results did not achieve statistical significance, we believe it’s important to continue to keep the patient and advocacy community informed about the data generated in clinical trials with ganaxolone. Now I’d like to share some exciting updates on our clinical development programs starting with our efforts in developing a second generation ganaxolone. I’m pleased to announce encouraging results from our Phase I second generation ganaxolone formulation studies, where we recently completed the third and final cohort in a single ascending dose trial, utilizing doses up to 1,200 milligrams in healthy volunteers.

We saw a linear dose exposure relationship up to this higher end of the dose range and a profile that has the potential for BID dosing with a longer percentage of time at a blood level above a minimum effective concentration. The next step is a multiple ascending dose study looking at repeat BID dosing, which will be initiated in the second quarter. Along with some additional PK modeling, the MAD study will be important for defining dosing in our pivotal clinical trials. Ideally, we’d be able to move straight to Phase 3 rather than having to do dose ranging in Phase 2. The initial clinical indication we will pursue is Lennox-Gastaut syndrome, a severe form of epilepsy that begins in childhood with neurodevelopmental impairment and intractable atonic, tonic and generalized seizures.

Given the overlap in seizure types and etiologies with other disorders where ganaxolone has therapeutic potential, such as CDD and TSC. We believe that LGS represents a promising opportunity to address the continuing unmet need in this patient population. We’re targeting finalization of the plans for clinical development in the second half of this year. We are also advancing the development of ganaxolone prodrugs for both oral and IV administration. An oral prodrug candidate has been selected and preclinical development is ongoing. And we expect to select a lead IV candidate shortly. Moving to our Phase 3 TrustTSC trial in tuberous sclerosis complex, we’re pleased to share that we are actively screening and enrolling patients, targeting 90 clinical sites predominantly in the U.S., and Europe with additional site activations expected in Canada, Australia and China.

We’re encouraged with the high-level of enthusiasm in the medical community for this trial and anticipate top line data in the first quarter of 2024. Now I’ll move on to our IV programs. As Scott mentioned, the protocol amendment for the Phase 3 RAISE trial and refractory status epilepticus has been broadly adopted at our clinical trial sites. We’re expanding the number of participating rates study centers in the U.S., as well as Canada and Australia. In November, we held an investigator meeting in the U.S. to emphasize the importance of this study for patients and to educate our sites on the updated protocol. Investigators have expressed considerable optimism about the potential of the amended protocol to allow recruitment of a greater number of eligible patients, particularly patients transferred from other centers to study sites or from the emergency room to the ICU.

We are working closely with sites to support timely study enrollment, actively monitoring what’s working well at a site level and identifying where we can provide additional support for trial recruitment and execution. These protocol changes in site engagements are critical to enrolling appropriate patients for the Phase 3 study and replicating the success of the Phase 2 trial. In addition, members of our scientific affairs and clinical development teams have been on the road maintaining intensive site engagement and responding to questions about the protocol and study procedures. Marinus Scientific Affairs has a group fully dedicated to supporting study enrollment and engaging with RAISE principal investigators and other site personnel. With these enrollment initiatives, more sites being activated on a global scale and a reduction and the impact of COVID on healthcare systems, we’re seeing an uptick in enrollment and remain on track for data in the second half of 2023.

As a reminder, based on previous conversations with the FDA, we expect that a positive RAISE study will be sufficient for filing in the U.S. There is also the potential for expansion of the age range of eligible patients. The trial is currently designed to enroll patients 12 years of age and older. However, we recognize that there is a high incidence of status epilepticus in children. We’re currently working with the FDA to determine what information would be required to support the inclusion of patients below the age of 12 in our studies, which could expand the pool of eligible patients and further support enrollment. As we previously mentioned, there is the option for an independent data monitoring committee to conduct an interim analysis when two-thirds of the participants, approximately 82 patients have completed the study.

We will make a determination in the second quarter whether we will move forward with an interim analysis later this year. While conduct of an interim analysis often affects the statistical power of a study, should it continue to full enrollment. The interim analysis for the RAISE study is designed to have a minimal effect on the efficacy outcome of a fully enrolled trial. We’re also happy to share that we have successfully manufactured a modified IV formulation of ganaxolone with a new buffer and expect to incorporate it into the RAISE trial in the second quarter of this year. We believe this formulation change will lead to increased product stability and are targeting a shelf life of at least 24 months. Registration batches of the modified formulation are expected to be placed on stability shortly.

Planning continues for the RAISE 2 study in refractory status for European registration, which is expected to begin enrolling patients in the second-half of 2023. Moving on to the Phase 2 RESET study in established status epilepticus, we remain on track to begin U.S. enrollment this year. The first phase of the study is designed to determine the optimal regimen of ganaxolone for established status and will include up to eight sequential cohorts of five patients each with the results from each cohort used to determine dosing in the next. We expect to complete the first cohort by the end of this year. We’re excited with the momentum of our programs going into 2023 focusing on our late stage clinical trials, second generation formulations of ganaxolone, as well as our continued support for ZTALMY and CDD.

I appreciate the cross functional efforts from our R&D, regulatory and scientific affairs teams in executing our studies and engaging with the clinical, scientific and advocacy communities. Now I’ll turn the call over to Steve Pfanstiel, who will provide you with a financial update.

Q&A Session

Steve Pfanstiel: Thanks, Joe, and good afternoon to everyone. I am pleased to be able to share our financial results for the fourth quarter and full-year 2022, as well as initial guidance for 2023. Before going into our results, I’d like to touch briefly on what was a very active fourth quarter on the financing front. In the quarter, we successfully completed a follow-on equity offering raised $64.5 million of net funding. We are very pleased to bring in several new investors to the Marinus story as a part of the offering. Additionally, we completed a revenue interest financing agreement with Sagard Healthcare Partners, which brought a $32.5 million upfront in return for future payments on U.S. net sales of ganaxolone including ZTALMY.

Additionally, we received a gross upfront payment of $10 million from Tenacia as a part of our development and commercialization collaboration with them for the Chinese market. These three deals added over $100 million in cash to our balance sheet, which when combined with our existing cash results in a year end 2022 cash balance of $240.6 million. Our cash is projected to be sufficient to fund our operations into the second half of 2024, inclusive of maintaining the required minimum cash balance of $15 million required under our credit agreement. I’ll now move into our financial results. In 2022, we recognized product revenues of $2.3 million and $2.9 million the three and 12 months ended December 31, 2022. As a note, this revenue consists of ZTALMY product sales in the U.S. Separately, we recognized BARDA revenues of $1.8 million and $6.9 million for the three and 12 months ended December 31, 2022 respectively, as compared to $1.5 million and $6.4 million in each of the same periods in the prior year.

Our actual 2022 BARDA revenue of $6.9 million was at the bottom of our guidance range of between $7 million and $10 million. We also recognized collaboration revenue of $3 million in the fourth quarter of 2022 related to the upfront payment associated with our agreement with Tenacia. Research and development expenses increased to $21.4 million and $79.9 million for the three and 12 months ended December 31, 2022 respectively, as compared to $18 million and $73.5 million for the same periods in the prior year. The change was due primarily to costs associated with increased R&D headcount and clinical trial activity. Selling, general and administrative expenses increased to $14.7 million and $56.8 million for the three and 12 months ended December 31, 2022 respectively, as compared to $10.6 million and $37.3 million for the same periods in the prior year.

The primary drivers of the change were increased headcount and commercial support for the U.S. launch of ZTALMY. For the full-year 2022, total operating expenses inclusive of R&D and SG&A were $136.8 million, which was below our guidance of $150 million to $155 million and was driven by the timing of certain activities including our API onshoring initiative and general spend management. The company reported net losses of $34.3 million and $19.8 million for the three and 12 months ended December 31, 2022, respectively as compared to net loss of $28.3 million and $98.8 million for the same periods in the prior year. As a note, the 2022 net loss in includes the one-time gain of $107.4 million from the sale of our Priority Review Voucher in Q3 2022.

These totals also include non-cash stock-based compensation expense of $3.8 million and $14.9 million for the three and 12 months ended December 31, 2022, respectively, as compared to $3 million and $13.9 million for the same periods in the prior year. Cash used in operating activities was $112.9 million for the 12 months ended December 31, 2022, as compared to cash used in operating activities of $55.5 for the same period in the prior year. For the fiscal year 2023, we are projecting U.S. ZTALMY revenues to be in the range of $15 million to $17 million and BARDA revenues to be in the range of $8 million to $11 million. We project our GAAP operating expenses inclusive of SG&A and R&D expenses to be in the range of $165 million to $175 million of which we expect approximately $16 million to be non-cash stock-based compensation.

The increase in operating expenses is driven by several critical incremental activities, including the initiation of our API onshoring program, which as a reminder is 70% funded by BARDA, CMC IV investments related to commercial readiness, our second raised trial for the EU market and full-year annualization of ZTALMY launch and support costs. Now, I’ll turn the call back to Scott, who will provide concluding remarks.

Scott Braunstein: Thanks, Steve. 2022 was a transformational year for the Marinus team and we are thrilled to enter 2023 with a strong balance sheet, positive momentum advancing our two late stage clinical programs and encouraging data surrounding our second generation product development. As always, we remain committed to delivering shareholder value and will continue to expand opportunities to serve patients that may benefit from ZTALMY. With that, I would like to thank our employees for their hard work and dedication to advancing our mission. Operator, can you now open the call to questions?

Operator: Certainly. We’ll hear first today from Brian Abrahams with RBC Capital Markets.

Brian Abrahams: Hey, guys. Good afternoon. Congrats on all the progress. Congrats to Steve on the expanded role and thanks for taking my question. Maybe just starting on (ph) on the RAISE study. I was wondering if you could elaborate a little bit more on what you’re seeing with regards to some of the — to the protocol modifications? I guess with regards to the types of patients going on to therapy, seizure burden? And then I guess your sense of how the pace of enrollments is proceeding now and your latest thoughts on whether or not you would potentially take an interim? And then I had a follow-up.

Scott Braunstein: Thanks, Brian. This is Scott, and I have Joe with me, this is the first time the Marinus team is all in a conference room together in a long time, so it’s kind of fun. Maybe I’ll just — I’ll make one or two comments and I’ll pass it over to Joe. It was the — really the fall of last year when we kind of gave a comparison between the early enrollment trends in RAISE and our Phase 2 data. And we’ll plan to do that again around the time that we’ll send the data to the DSMB. And so I don’t think we can specifically comment on any updates in the most recent weeks. And certainly, as we see enrollment continue to expand, this is a very active process and I think you’re going to have to be patient with us that realistically this is not something we’re going to be updating on a regular basis.

I think from a site perspective, as Joe and I both said on the call, we’re really enthusiastic about where we are today. The team’s working hard. We’re seeing that in the enrollment numbers. And I think generally we feel like we’ve got the right investigators, the right sites that are going to drive high quality patients, the appropriate patients for the study. And certainly we’re really still focused on patients more than anything whose next treatment would move to general anesthesia and guaranteeing or expecting that will drive a low placebo rate in the study. And I think most importantly, we are still very confident about those type of patients being enrolled. Joe, any other comments you want to make specifically?

Joe Hulihan: No, I’ll just add, you asked about seizure burden. And so far, the seizure burden in the Phase 3 closely replicates the Phase 2 and this protocol amendment should even more closely — bring in patients that even more closely replicate the population in Phase 2 patients. There was actually misunderstanding the patients who were intubated couldn’t come into the trial, but there were about half the patients in the Phase 2 study were intubated on trial entry. And so that’s one thing that’s facilitate enrollment of more patients. The amendment will allow more patients coming in on intubation from transfer to the hospital or from the ER.

Brian Abrahams: Got it. And then maybe if I could a follow-up on the oral you recently had the publication of the PCDH19 data that you mentioned. Can you give us any sense of the potential for reimbursement in that indication and sort of the interest amongst physicians to use or tell me there, I guess how much expectations for off label use are baked into your guidance? Will that be all upside? And I’ll hop back in the queue. Thanks.

Scott Braunstein: Yes, Brian, we’ve been pretty open about just reporting our CDD numbers overall. And although the epidemiology for PCDH19 is very similar from a number standpoint, compared to CDD. We’ve spoken to quite a few physicians in the community and the unmet need is dramatically different, there’s really only a small subgroup of patients who suffer from PCDH19, who have intractable seizures. So, I think we think about it as a much smaller market opportunity. We certainly think the Phase 2 data in the publication is something that the payers and compendia can look at and review and see that data in the public domain. We think that’s important. We have seen a few spontaneous prescriptions, but we don’t see it as a meaningful part of the prescription story in the near future.

But certainly, it’s nice to know that payers understand that these patients, who have retractable PCDH19 could potentially benefit from ZTALMY. And I think that’s — it’s really important that in those rare cases, there is access potentially available to them. So, it’s really nice to see.

Brian Abrahams: That’s really healthy. Thanks again, Scott.

Scott Braunstein: You got it, Brian. Thanks for the questions.

Operator: We’ll hear now from Joon Lee with Truist Securities.

Joon Lee: Hi, thanks for the updates and for taking our questions. It’s impressive that you’re able to provide guidance at such an early stage of the launch. What has the reimbursement rate been like in fourth quarter and overall gross to net? And what can we expect in terms of reimbursement rate and gross net for the first quarter of €˜23? And I have a follow-up.

Steve Pfanstiel: Yes. Hi, Joon, it’s Steve Pfanstiel here. I’ll touch on the gross to net piece, so we have kind of consistently said we expect gross to net discounts to be in the low-20% right around there. We still think that’s the right expectation. We’re still seeing approximately 60% or more patients with Medicaid coverage. We know that’s a 23% discount. Separately, we have copay programs for commercial payments. We did see upside in the back half last year, I think our gross to net deductions were around 15% in Q4. And that’s really driven by a few dynamics of having a second-half launch. One is simply a lot of patients are through the copay, so they don’t need as much support for that. The other piece is we simply didn’t have all access to All State Medicaid programs, which we now do. So now that we expect to have kind of more Medicaid coming in. We see it stabilizing this year around that 20% gross to net deduction.

Joon Lee: Great. And the follow-up question is, if and when you do an interim look, will you have an opportunity to extend the trial or stop the trial either due to efficacy or utility? Basically, trying to understand the goal of the interim look for rates? Thank you.

Joe Hulihan: Yes. The general is being done for the potential to stop for efficacy. Stopping for futility is really hard to demonstrate, so the primary goal is whether or not we can stop for efficacy at that point.

Joon Lee: Alright. Thank you.

Scott Braunstein: Joon, I’ll add — I’m sorry, operator. Let me just add a little color Joon to your question. I think when we initially powered the study, we had very conservative assumptions about a 30% efficacy delta on both primary endpoints. We had really very limited data on our key secondary endpoint. I think we continue to be confident that the delta between placebo will be significantly greater than 30%, that’s our hope and expectation. And certainly now one of the key elements that goes into an interim is our belief that when we look at a key secondary specifically looking at days in the ICU, we have an 80% power at that interim to show a two day or more benefit. And so you add those pieces up and I think to Joe’s point, it gives us a lot of confidence that not only can we hit efficacy at the interim analysis, but really show a meaningful health economic benefit, which is going to be critical for the launch of the drug.

Sorry, operator, I’ll turn it back to you.

Operator: No problem. We’ll move next to SVB Securities, Mark Goodman.

Rudy: Hi, this is Rudy on the call for Mark, so thanks for taking my question. Maybe can you talk about the trend of new patient starts moving into 2023? And for now, how long it takes to fulfill the prescription? Maybe just walk us through the process? Thanks.

Christy Shafer: Hi, there. Thanks for the question. Considering the fact that we’ve seen about 30 new prescription enrollment forms in Q3 and then another 40 in Q4, we’ve seen to be very pleased with the progress and continued momentum that we see moving into Q4 — or excuse me, into Q1. With that progress, we’re tracking at about 40% increase in total prescriptions over Q4 at this time.

Rudy: And can you provide more color like how long it takes to fulfill the prescription for now?

Christy Shafer: Yes. Sorry, I forgot that note. I apologize for that. Right now, we initially planned for around 90-days to get through that prescription fulfillment process and we’re very pleased with the fact that right now we are tracking at around 30 days. 75% of our patients right now have received reimbursed therapy through Q4 and we continue to see those enrollment curves going and moving forward into Q1.

Rudy: That’s very helpful. Thanks.

Operator: We’ll hear next from Andrew Tsai with Jefferies.

Andrew Tsai: Thanks. Congrats on the progress. Thanks for sharing all these updates. I did have one clarification question on the interim analysis. Pardon of my summary, but I hopefully we captured it correctly is that if you did hit on the interim, it is possible the study completely stops due to overwhelming efficacy. The other scenario would be study continues as is for the final analysis, but it may be unknown whether there was a trend as opposed to perhaps the drug not showing anything. Is that kind of the right scenario we should be thinking about?

Joe Hulihan: Yes. So, if there’s efficacy at the interim. The trial, it takes about two months to clean the data and do the analysis. That would be conducted by a blinded statistician in conjunction with the data monitoring committee. If they see efficacy at that point, then they’ll notify us the decision is made to whether or not to stop the trial. If they do not show efficacy, we won’t know anything, they’ll just say continue the trial without modification and then we’ll complete to 124 patients, but we won’t know anything about the direction of the study, the direction of the results. It would just be continue without modification. And I’d point out too, and I think I said this in the prepared remarks that we don’t pay a substantial penalty for doing the interim. It’s really a minimal effect on the statistical power if it goes to completion.

Scott Braunstein : And Andrew, just one additional clarifier, why — should we choose to do an interim analysis in that period, while the data is being cleaned or reviewed by the DSMB, we will continue to enroll patients during that period of time. We would view those patients important for the overall safety within the label for the FDA requirements and ultimately we would collect that data set as well. Let’s assume we — on day one, we choose to do an interim analysis at day 60 when the DSMB comes back to the company, we might have enrolled five, 10, 15 or 20 more patients and that would be critical to evaluate that double blind portion of the study with the final FDA filing.

Andrew Tsai: Very clear. Thank you so much. Very clear. And secondly, as a follow-up, in terms of the ZTALMY guidance $15 million to $17 million for 2023, just curious to the extent you guys can share is what kind of assumptions are being baked in on the lower and upper end. I guess the root of the question is this a realistic type of guidance or is it a conservative one such that you can beat and raise throughout the year? Thank you.

Steve Pfanstiel: Hi, Andrew. This is Steve. I’ll address that question. Look, we’ve tried to be really reasonable with our assumptions and I think we’ve talked about some of those in the past, I think we feel pretty tight about the gross to net deductions being in that 20% range. It is still early. We just have that one full quarter of launch so far. But we feel pretty confident when we look at bottles per script and we’re seeing it just over five in the naive patient population, that’s a reasonable number as we look forward. We do think that will increase solely over time as patients age. We’re seeing a steady buildup of patients; this isn’t a bolus situation. We know that these patients have a lot going on, it’s a complicated decision, a lot of factors in.

So, we expect to see kind of the steady build of patients over time. And then from an attrition standpoint, again, still very early, but using the Marigold Phase 3 open label data, we know that over 60% of the patients are still on drug at two years. There will be some that will attract where they just won’t reach the right blood level ganaxolone or for other reasons. But we think for the vast majority of the patients, call it 70% or so are going to stay on the therapy for a long period of time with annual attrition more in the single-digits after that initial three to six months period. So that should give you kind of the broad outlines of how we came to the $15 million to $17 million range.

Andrew Tsai: Very clear. Thanks again. Congrats.

Scott Braunstein: Thank you, Andrew. Appreciate the questions.

Operator: And Charles Duncan with Cantor Fitzgerald has our next question.

Charles Duncan: Okay, super. Yes, congratulations on all the progress and thanks for taking our questions. I had a question on RAISE and then really my main questions are on the second generation ganaxolone. And so just quickly on RAISE, I guess, there’s been a debate among some investors whether or not the broadly adopted changes in the protocol result in more or less heterogeneous patient population? And how do you feel about that relative to the trade-off for timing?

Joe Hulihan: Yes. Thanks, Charles. This is Joe Hulihan, so I don’t think it’s going to introduce more heterogeneity into the population. The range of etiologies we’re seeing so far in Phase 3. We are very closely Phase 2. And the treatment is really more of a final common pathway of status. Than dependent on etiology, although ultimate patient outcome obviously depends on etiology. So, we don’t see that the amendment is contributing more heterogeneity. And on the flip side, I think the thing that’s much more powerful that Scott mentioned is the change to the protocol that the next treatment, the next likely treatment would be IV anesthesia. And that is going to, I think, increase the sensitivity to detect a treatment difference on that second endpoint and get us patients again that are consistent in terms of their severity, but also as I mentioned mirror the patients in the Phase 2 study.

Scott Braunstein: Yes. And Charles, I’ll add status epilepticus by definition is a heterogeneity, a disease of heterogeneity. And as Joe mentioned in the Phase 2, there was no evidence that the disease state underlying status was at all affected by treatment. Ganaxolone was an independent predictor of success. And I — what I loved about the Phase 2 was that we saw every etiology. I was a little worried in the Phase 2, particularly sites like Duke and bring on that see a lot of glioblastomas that we would get a disproportionate number of glioblastomas in the Phase 2 and we didn’t. Because in real world status is quite interestingly has five or six major etiologies. And as Joe said, that’s why we’re seeing in the Phase 3, I think the critical piece that we’re spending our energy on is really making sure that these protocol amendments still lead to patients whose next step would be general anesthesia.

I think we’re very fortunate when patients are screened. They are in constant contact with our medical team. Our medical team is talking to those physicians, Henri Vaitkevicius, who was our lead investigator from the Phase 2, who many of you know aren’t many of those calls. Dr. Gasior, Maciej Gasior, who wrote the Phase 2 protocol is on many of those calls, so every one of these patients, who are enrolled in the trial, we not only are aware of, but we are in constant communication with those investigators and we continue to believe the quality of the patients are far and away what we need them to be to really show the value proposition of the drug. Joe is going to add one comment.

Joe Hulihan: Yes, one other thing occurs to me and that is that at the baseline before they’re treated, we do a score called the STESS status epilepticus severity score. And that also seems to be mirroring what we saw in Phase 2. So that is probably a good measure of heterogeneity more so than diagnosis, the severity of the status, it’s based on a number of clinical factors. So that score is so far looking similar to Phase 2.

Charles Duncan: Very helpful added color. Looking forward to that data, if I may. Just one follow-up with regard to the second generation ganaxolone really intrigued with that. I’m wondering if you could provide any additional color on why you think that could be a BID dosing? And then any sense in terms of the size of the trial for the Phase 3 in Lennox-Gastaut?

Joe Hulihan: So, the reason of — the first part of your question, Charles, that we are seeing kinetics with the single dose studies that really support the ID dosing. I mean the goal is to see increased exposure, increased AUC and relative to Cmax. And so we’re seeing a good bump in the AUC with a slower decay of the plasma concentration. And then we’ve modeled the BID dosing, done some pharmacokinetic modeling from the single dose results and that looks very favorable. We’re seeing a good minimum plasma concentration at what we think maybe the target dose. And so — and that was a limitation especially in the early focal epilepsy studies when they gave it twice a day. The Cmin would drop below the minimum effective concentration.

In fact, the modeling we did modeling for both the suspension to current formulation and the reformulation and giving the suspension BID. We actually saw similar actual results in one of the focal epilepsy studies that was reproduced by the modeling, so we’re very comfortable with the modeling results.

Scott Braunstein: And I’d only add, Charles, I think, do we actually think we need an MAD study probably not just from what we’ve seen. But I think for us to think about leapfrogging the Phase 3 having comprehensive MAD study, understanding how the product does with different foods, which is so important in the pediatric population. And seeing those curves, so that when we should we choose to go to Phase 3, we will really be able to — my hope would be to target two different blood concentrations as a critical part of that study. So again, early days, but I would think about a Phase 3 that has three arms, two active arms and a placebo, very similar to what you’ve seen with Epidiolex in for example, their TSC study, their Phase 3 study.

I do think we have the ability to have some interesting regulatory discussions whether it be a single study or two studies. I think we are thinking very hard about safety, and what would be required from a safety database perspective. So more to come on that, and we certainly haven’t made a final decision. I think what we wanted to communicate with you this call is that the kinetics are incrementally better than we had hoped for. And given that it makes it a bit of a more — a potential to move quickly into Phase 3, if we see a consistent signal from that MAD study. So it is really exciting, we’re seeing things that this franchise have never seen with its oral program before. And we really are believers that higher blood levels on a chronic basis can increase the efficacy of an already very favorable product.

So, thanks for the question. Appreciate it. Hope we got it all.

Charles Duncan: Yep. Thank you. Very good.

Scott Braunstein: Great.

Operator: We’ll hear next from Douglas Tsao with H. C. Wainwright.

Douglas Tsao: Hi, good afternoon. Thanks for taking the questions. Just to clarify, I think you said in terms of the interim analysis some of the secondary endpoint in terms of improvement in terms of days in the ICU. So was this something that you have subsequently felt more comfortable in terms of the powering just given some additional work that you’ve done on the health economics front or just understanding how long patients are in the ICU that you feel more comfortable that you will be able to hit that given the powering numbers for the interim analysis?

Joe Hulihan: Yes. Thanks, Douglas. This is Joe. So yes, the short answer is yes, we’re confident, we’ll hit on that key secondary. We have a number of healthcare utilization endpoints built in. One is days in the ICU, one of them is actually built into the hierarchy of analyses. It’s a stepwise analysis. Get the first primary, get the second primary, get two key clinical primaries and then that health utilization end point is actually in that hierarchy of analyses. So if they all hit and that healthcare utilization end point is statistically significant, that will be considered a substantial level of evidence and would be appropriate for promotion and it will be a high level of evidence. And so we looked at the powering assumptions not just for the primary, but for the secondary.

And that key healthcare utilization endpoint is time on ventilator, due to status epilepticus and that’s less confounded days in the ICU may be confounded by whether there’s pressure on beds and so on. And so, but the time on ventilator and we’ve gotten advice about this from someone, who’s very versed in health economics. Adam Strelzik is a neurologist in Germany, who’s done a lot of work with this. And that will be a much more sensitive endpoint to look at, but we’re also looking at days in the ICU. And we’ll see what happens on that one. I also think we have adequate power to show a difference on that as well.

Scott Braunstein: And the only thing I’ll add, Doug, is this was something when we first met with the FDA and we thought about powering the study did not really play. We included into key primary endpoints, but we really didn’t have the scientific team. And I give Alex Aimetti and his team a lot of credit, who spent a lot of time helping us really look at the literature, think about where these patients would come out and what we would need to see in terms of an improvement to win on these key outcomes. So to this discussion, before we went to the FDA and asked to perform an interim, our team vetted what we thought we could win on, and that drove the end of 82 specifically and certainly when we looked at an end of 60 for example, we still felt very confident about the primary, but our ability to hit secondaries were significantly lower, powered to about 50%. So that end of 82 was the sweet spot from primary and those key secondary analysis.

Joe Hulihan: Even at the interim, we have 90% power on that on the time on ventilator endpoint.

Douglas Tsao: Okay. Great. Thank you. And then just as a quick follow-up. Scott, just to clarify, so if you do the interim look, you would still enroll patients and would ultimately the NDA filing be based on the interim or would it be based on the full data set?

Scott Braunstein: Yes, our basic assumption today is that it would be based on the interim as the primary label. We would collect all of the blinded data, we would submit it all, so there is a potential and there have been one or two cases where you’ve seen that blinded data included in label. Normally those things are pre negotiated, we wouldn’t expect it today. But the only piece I will mention is that the agency has said if you choose to do an interim, remember there is a safety burden, end of safety that we would like from the company. So, we are continuing to not only enroll double blinded to have an additional number of patients that we can evaluate, but should the trial be stopped for efficacy on an interim, which would be our expectation.

Should we take that look? We would continue in all probability to keep an open label arm for data safety collection or use RAISE 2 as another venue to collect additional safety as part of our requirements for registration. But we’ve had these discussions about what we expect the label to look like. I think base case is that it would look — it will be primarily based on the patients in the interim analysis. But that being said, we will have double blind placebo controlled data on another set of patients that we certainly would submit to the agency as part of the package. Make sense?

Douglas Tsao: Great. Thank you so much. Yes, sure.

Scott Braunstein: Operator?

Operator: And from Oppenheimer, we’ll move next to Jay Olson.

Jay Olson: Hey, congrats on all the progress and thank you for taking the question. Have you seen any increase in the CDD diagnosis rate since the launch of the ZTALMY. What are the current factors that limit the diagnosis rate? And how do you plan to increase diagnosis? And what are the largest drivers of volume growth for ZTALMY in 2023? Thank you.

Christy Shafer: Hi, there. This is Christy, I’ll take the first part of this question. So from a CDD diagnosis point, we do a lot of analysis on usage of the ICD-10 code across the United States. And what we’ve realized is that our promotional efforts have utilized the code much more at the end of 2022 into 2023, which is supportive of not only identifying these patients, coding them correctly and then getting them properly on therapy. So from a diagnosis standpoint, that currently is how we’re triangulating and finding these patients. Currently, we have found, we made some assumptions on where these patients are being treated. I’ll remind you that there are eight CDD centers of excellence across the United states. However, we do know that these patients go to these centers of excellence on a more limited basis sometimes one every six, every 12 months and then they’re seeing more routinely at their home physician.

So the increase in these diagnostic rates may be limited, if you will, at the home physician and then these increased rates at the centers of excellence. The other thing that we know is that in more rural areas, these patients don’t have the capabilities to get to a center of excellence. So, are they utilizing the code at the best of their capabilities? Probably not right now. So in 2023, we have some efforts to not only be able to educate more distinctly. We’re increasing our speakers’ programs. We have a very distinct effort to increase awareness through our patient advocacy partners, through partners that have patients on therapy to speak to families, who have new diagnosed patients, so there’s a lot planned for 2023 to increase awareness, increase education and ultimately get the code used more specifically in this patient population.

Jay Olson: Great. That’s helpful. Thank you.

Operator: We’ll hear next from Brian Skorney with Baird.

Brian Skorney: Good afternoon. Thanks for taking my question and congrats Steve on the promotion well deserve. Just also wanted to get some additional guidance on your thoughts around the inter just sounds like you’re getting a lot of comfort that you should be powered based on what you’ve seen for an excellent hit the interim. So I really wanted to get a handle on what sort of delta assumptions you have for the differences between the primary end point for a full analysis without the output hit to the P-value versus the output. If you do take the interim and it just seems about on my calculation, it’s like a 30% delta versus a 33% delta. And I guess I’m having trouble understanding why it’s just not an obvious decision to take the interim in that case. So my question is, what are the factors to consider as to why you wouldn’t take the interim?

Joe Hulihan: Well, this is Joe. Thanks, Brian for the question. So, the study is well powered, we were looking I think we have more data now on the secondary endpoints and wanted to be comfortable as Scott mentioned that it was powered to hit on the key healthcare utilization endpoints. The assumption about the delta is the same. The reason we would decide not to do the interim would be if the enrollment is just gangbusters. And by the time we got done with performing the interim analysis, the study would be fully enrolled. So, there’d be no reason to do the interim. And that would be consideration, otherwise, we’re going to do it. Now gets into a little bit into the weeds, but there is — there’s a lot of assumptions you can use to build an interim analysis.

How much — well, as you know, how much (ph) you spent at the interim versus the end? There is an alpha spend at the interim analysis. However, if you look at the actual outcomes on the endpoints, the difference between a 4.05 of a fully enrolled study and the alpha we would have at the end having performed an interim is a difference in one patient outcome. And so even though there’s — you have to hit a lower P-value at the end if it proceeds to the end after an interim. The actual clinical penalty you pay is very low, but the assumptions for the interim are the same 30% delta and it still remains well powered.

Scott Braunstein: Let me jump in, Joe. Look, Brian, I’m totally with you, I don’t think we have any expectation that the delta in this study is going to be 30%. We think it’s going to be potentially 40%, 50% potentially 60%. That being said, I think in a small study, one or two patients could potentially do wonky things to your ICU days or other health economic outcomes. So in general, my bias would be to have more patients in the study to reduce that risk of an outlier. Joe has reminded me, the outlier could come on patient number 95 or 105 the same way it could come on patient number five. So, we keep that into consideration as well. But to this point, I think the bigger and certainly gives us a little bit of comfort on out buyers more than anything else and really has minimal impact in our view of the primary endpoint.

That said, I think every time a site now initiates and treats a patient, and gets comfortable with the protocol. They’re going to be a little bit better on patient number two and three, that’s normal. And I think as we saw in the Phase 2, that comfort only led to equally if not greater success in terms of the utilization of the drug. So, there is a comfort level as our clinicians get into a sweet spot. There is an element of sites that are activating now and starting to get busy that we give them several months to participate in the study. But I don’t think any of us are really losing a lot of sleep on the key powering assumptions. It’s just the small end always creates some unknown risk, particularly on the placebo side. So, nothing more than that, I think it’s more theoretical than practical.

But it is nice to have a lot of data points, while the study is ongoing to what we’ve shared with you in terms of understanding baseline characteristics and not being surprised by the types of patients being enrolled, et cetera. So it is — that’s what we’re balancing and we feel that we’re fortunate that we have the luxury of the FDA support if we choose to take an interim.

Operator: We’ll hear now from Jason Butler with JMP Securities.

Jason Butler: Hi thanks for taking the questions. Just a couple more on the novel formulations. First one from the MAD data, do you expect to have — will there be enough data there to make a meaningful interpretation of the somnolence incidents? And then secondly, if you move forward quickly with the first reformulation into a Phase 3 trial in LGS, how should we think about the utility of the prodrug? And how you could use that strategically moving forward? Thanks.

Joe Hulihan: I could comment on the first part about the somnolence, Jason. Thanks for the question. Okay, and so I think we do see increases in Cmax with increasing dose, I think the major factor that’s going to affect the rate of somnolence is going to be a titration rate. We’ve adjusted the titration rate in the current ongoing TSC study, kind of, the low and slow approach. Start the escalations at a low level and then ramp them up toward the end of the titration. And I think that’s going to be the major factor affecting somnolence. I wouldn’t expect a detailed read on somnolence, we’ll get some idea from the MAD study, but these are healthy volunteers and they aren’t on the concomitant medications. They don’t have the cognitive impairments and so on, neurodevelopmental problems. So, it really takes the clinical trial to get a good idea about that. And in terms of the prodrug, I’ll let Scott, can you comment on the prodrug piece of it?

Scott Braunstein: Sure. And let me just back up, I think, on the MAD and the somnolence, Jason, I’ll use this opportunity to share as we have that we continue to feel as though in the blinded Phase 3 TSC study we are seeing improved rates of tolerability, lower rates of discontinuations. And I really think the work that Joe has done to create that new titration schedule, we’re seeing what we believe is going to be a meaningful impact in the TSC study. And at the lower doses of our novel formulation, it behaves very similarly to ganaxolone. So we would expect to use the same type of titration, almost the identical titration for the new formulation. Certainly, when you are absorbing much more drug, you are going to get some bigger Cmax’s.

But again, we believe in a very reasonable fashion via titration, we don’t see it as an issue today. And we certainly will get some additional insight on that from the MAD study, but we’re only doing some mild titration in the MAD study at the 1,200 milligram dose. So it’s not truly a titration schedule, it’s an — or a titration study, it’s an MAD study. And so just to be clear, there are some of those frank differences. The prodrug has a few different value propositions I’ll start on the IV side. It would really eliminate our need to use Captisol. And although our partners at Ligand have been very helpful. It’s a lot of work to work with Captisol, it’s limited the drug in — it’s certainly going to have some limitations in very young patients.

It’s going to have limitations today in super refractory status. And it’s an important opportunity for us to expand the amount of ganaxolone we can give in a day without tying it specifically to GAAP result. So it is really an important piece of our future that we are investing in today. On the oral side, right now, the PK profile of our lead candidate on the prodrug side has the potential for once a day dosing, certainly has the potential for a unique IP profile, has potential for a significantly lower cost of goods. And I think we’re very fortunate right now that we have two programs that look incredibly exciting. And I think what we have to weigh is a prodrug is still a year plus away from IND. And then the interim, certainly given the — what we’re seeing with the current new formulation.

I think we feel compelled to move that program along rapidly and we have the potential benefit of moving to the prodrug down the road for all of the reasons mentioned earlier. So, this is really a fantastic problem that we have to solve for. It should be our biggest problem in life choosing to great future compounds that can deliver higher blood levels and easier dosing for patients, which we ultimately think will drive greater efficacy. But to your point right now that new formulation program has actually behaved better than we thought via the preclinical models. But again, that’s the real reason we’re moving it rapidly forward and we’ll see how Pro John fits in. Time will tell. So, thanks for the question. I think it was a really good one.

With that operator, we’re going to call it a night. Thank you everyone for all your questions. Appreciates the support. Again, we are really excited going into an incredibly important year for the organization. Our commercial team continues to do great things. Our clinical operations team and our clinical team is doing their best to move our clinical trials along. And we really feel we’re at a major inflection point and we appreciate all of you making the time tonight. Thanks so much. Operator, we’ll end the call.

Operator: Thank you. And again, that concludes today’s conference. You may now disconnect.