NRx Pharmaceuticals, Inc. (NRXP) Earnings Call Transcript & Summary

Good morning and welcome to the NRx Pharmaceuticals Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Matthew Duffy, Chief Business Officer. Please go ahead.

Thank you, Jason. Before we proceed with the call, I would like to remind everyone that certain statements made during this call are forward-looking statements under U.S. federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. Additional information concerning factors that could cause results to differ from statements made on this call is contained in our periodic reports filed with the SEC. Forward-looking statements made during this call speak only as of the date hereof and the company undertakes no obligation to update or revise the forward-looking statements. Information presented on this call is contained in the press release issued this morning and in the company's Form 8-K, which was filed this morning as well, which will -- and will also be available on the Investors page of the NRx Pharmaceuticals website. Joining me today on the call from NRx Pharmaceuticals is Stephen Willard, Chief Executive Officer. Stephen will provide a summary and discuss the strategic rationale for the deal. Following his prepared remarks, Stephen will be joined by Jonathan Javitt, our Chief Scientist, to address investor questions. I will now turn the call over to Stephen.

Thank you, Matt. Good morning, everyone and thank you for joining us today. I encourage everyone to visit the Investor Relations section of our website to read the press release related to today's call. We are incredibly excited to announce our strategic partnership with Alvogen for our lead product, NRX-101. The partnership is for our first indication of suicidal bipolar depression. We believe that this partnership will facilitate our efforts to bring NRX-101 to patients suffering from this deadly condition who are in desperate need of an alternative therapy. Today's agreement enables a clear path to market for our first indication, while allowing us to begin to address the additional indications of chronic intermittent bipolar depression, PTSD and chronic pain. To offer some marketplace perspective, approximately 1 million Americans are believed to have suicidal bipolar depression, 7 million are believed to have chronic intermittent bipolar depression, 12 million are believed to have PTSD and 30 million are estimated to suffer from chronic pain. Partnering with Alvogen and their branded psychiatric affiliates, Alvogen Pharma U.S., [ Almatica ] Pharma and Lotus Pharmaceuticals, which I will refer to collectively as Alvogen, validates our initial focus on this breakthrough population and leverages Alvogen's well-known CNS experience, operational strength and proven commercial acumen. We look forward to working closely with them as we bring this much-needed treatment to patients suffering with suicidal bipolar depression. Today's transaction removes the need for NRx to raise or dedicate capital for future activities beyond Phase II data relating to suicidal bipolar depression indication and creates opportunities for us to explore the broader market for NRX-101. As we have noted before, we invested considerable resources during the pandemic in scaling up and validating our manufacturing processes. And we now have approximately 1 million capsules of NRX-101, manufactured using commercial scale processes ready for testing and expanded access use in various indications. As we noted in our recent earnings call, we believe we have sufficient cash to fund the company through data from our ongoing trial, which is expected during the fourth quarter of this year. This triggers a $10 million milestone on successful readout and FDA feedback. Under the agreement, Alvogen will receive global rights to NRX-101 in suicidal treatment-resistant bipolar depression. NRx Pharmaceuticals can receive up to $330 million in cash milestone payments together with a generous royalty, commencing with the first payment of $10 million upon delivery of a positive readout from the ongoing Phase IIb/III clinical trial in suicidal treatment resistant bipolar depression as well as FDA Type B meeting minutes. Additional milestone payments for achievement of regulatory and sales milestones are provided. Additionally, NRx will receive double-digit royalties escalating to the mid-teens on net sales by Alvogen and Lotus. In addition, Alvogen will fund substantially all future development and commercialization costs of NRX-101 in treatment-resistant suicidal bipolar depression following payment of the first $10 million milestone. We are confident that analysts and others who analyze the transaction will conclude that the milestone and royalty structure associated with partnering this first indication early, more than offsets the dilution that we would have incurred associated with Phase III, pre-commercial and commercial launch activities for patients with active suicidality. Our collaboration with Alvogen is a significant step forward for us as we advance our goal of delivering potential life-saving medicines to patients with life-threatening psychiatric conditions. Partnering with Alvogen will allow us to continue to meet the needs of underserved patients with serious CNS disorders and achieve tremendous progress across our pipeline. Alvogen and their affiliated companies will help us bring hope to the millions of patients with suicidal bipolar depression who have been historically underserved and forgotten in the treatment paradigm. In order to best understand our thinking around this partnership, it's important to understand how we started and where we are headed. We began in 2015 with $1 million in capital based on Dan Javitt's discoveries and patents around the potential role of NMDA inhibitor drugs for treating critical unmet needs in brain diseases. The founding investors had first-hand experience with the devastating effects of suicidal bipolar depression and committed to addressing this extraordinarily challenging indication first, knowing that it is an indication that it's far more difficult to manage than the broader indications we have named. The FDA was supportive from the outset, awarding us Fast Track designation, Breakthrough Therapy Designation, a special protocol agreement and a biomarker letter of support. Not only did the FDA meet with us, they met with patient representatives in the bipolar disease community and promised their support for drug development in the area of suicidal bipolar depression. We have now achieved commercial process manufacturing for NRX-101 and have been awarded more than 48 patents around the world, including composition of matter patents that are anticipated to provide marketplace protection through 2033 and beyond. We are not aware of any other sponsor of a Phase III NMDA drug that has received composition of matter protection. Now we would like to focus on how this exciting agreement affects our plans for 2023. Our #1 priority is to proactively manage enrollment for our ongoing registrational trial in suicidal treatment-resistant bipolar depression in order to reach our goal for a Phase II data readout in the fourth quarter as well as a Type B meeting with the FDA, as described in the Alvogen milestones. As you know, we recently announced that we have engaged [indiscernible] and Science 37, the CRO that specializes in decentralized clinical trials to increase the number of sites from which we can recruit. This provides us the flexibility to allow a team of nurses and psychometric raters to bring the study to the patient instead of the patient needing to travel to a study site. We anticipate that by opening up recruitment in this manner, we can effectively recruit patients into the study. Further, this will make it easier for patients to enroll, which could mean faster enrollment. So far, this strategy is yielding very encouraging results. A second priority in 2023 is advancing our PTSD program. We plan to file an IND application with the FDA by mid-year so that we can open a U.S.-based Phase II study in PTSD later this year. We anticipate that our existing IND for NRX-101 in bipolar depression will serve as a basis for a streamlined entry into PTSD clinical trials. As you know, PTSD is an area of critical unmet medical need that is unfortunately strongly associated with suicidality. Approximately 12 million individuals in our country experience PTSD, 1/3 of whom will have severe PTSD with 10% experiencing suicidality. Tragically, 17 to 22 members of our armed forces or veterans are lost everyday to suicide. Depression and PTSD may be treated with one of several SSRI antidepressants. However, no medicine has demonstrated a beneficial effect on the flashbacks and the suicidal thoughts that are so dangerous in PTSD. New evidence, both from the laboratory and from human trials, suggest that NMDA antagonists, as a class, may have a special effect in addressing these debilitating symptoms. Both ketamine and D-cycloserine have demonstrated the ability to extinguish reoccurring images of traumatic events, also known as fear memory in a validated laboratory model of PTSD. [indiscernible], which also targets NMDA has been demonstrated to improve PTSD scores in a randomized controlled trial and oral D-cycloserine showed promise in a human trial when combined with psychotherapy. Unlike ketamine, however, NRX-101 is oral, generally well tolerated and is neither neurotoxic nor is it addictive. Importantly, NRX-101 has not caused psychedelic effects, in clinical trials. We are on track to initiate a study of NRX-101 in PTSD in 2023. In closing, we are delighted to be partnered with Alvogen and we look forward to working with them in order to further our mission to bring hope to patients and value to investors. Operator, we're ready to take questions.

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Ed Woo from Ascendiant Capital.

My question is, how does this change your international strategy for NRX-101? Does it accelerate it in terms of being able to expand to markets outside the U.S?

Yes. Yes. Lotus Pharmaceuticals, who is one of the Alvogen Group, with whom we are partnering, they're an affiliate of Alvogen and a signatory to this contract, they identify themselves as one of the top 5 pharmaceutical companies in Asia. I mean, the United States will always be the most important market but this does offer opportunities for us with regard to international markets. And they're a stronger partner in that regard than some of the other partners we might have considered.

Great. And then you mentioned about Asia, what about Europe opportunities?

I'm sorry.

Before we go on to the next question, you asked about change. And remember, anything we've talked about with regard to these drugs has been U.S. only because the only reach we had was U.S. only. So all of a sudden, we have a partner that has global reach. And that is a substantial change that you and others will have to analyze.

That sounds great. In terms of -- have you thought about international markets? Are you planning on going to maybe Asia first or Europe first or both? Or is it still too early for you to think about that.

Well, in a marketing partnership of this nature, it's the partner's decision where to launch and Lotus has reach throughout Asia. A company like ours would never talk [indiscernible] seriously about we're going to go do a launch in those markets because we don't know the regulatory environments. We don't know the commercial environment. But by bringing on a partner with this kind of international reach, there are many more possibilities.

Great. Well, again, good luck.

Our next question comes from Charles Duncan from Cantor.

Stephen, Jon, congratulations on this strategic collaboration, looks to be an interesting one. Stephen, just had a couple of questions with regard to the terms of the transaction. I haven't had an opportunity to dive into these yet. But I'm wondering if you could provide us a little bit of color on really kind of the logic behind the value that was attributed, could you give us a sense of -- if it was meant to really, really meant to just cover past development milestones? Or was there a consideration of, call it, the market potential of the drug. And was it a competitive process?

Thank you for your question very much, Charles. So it is forward-looking in terms of the value that Alvogen believes that we and our products create. The $330 million of milestones are substantially in excess of any of the costs that we have incurred. It was a competitive process with regard to partnership. And we felt that Alvogen was the right partner but we had one other party in negotiations over the past several months.

Okay. That's helpful. And then of the $330 million in milestones, I'm sure you haven't disclosed it specifically but could you give us a rough estimate of what percentage of those could be earned during development before commercial launch and what percent roughly post launch?

A significant majority are post launch.

Okay. And then with regard to the sales thresholds, are, excuse me, are those achieved in an accrual basis? Or are they -- is there a reset every year? Is there a total revenue per year?

It's an accrual. It's a trailing 12 months calculation and it's done on a worldwide basis. Okay. Sounds good. Congratulations, looks to be an interesting deal.

Our next question comes from Jason Kolbert from Dawson James.

My congratulations as well. I just want to zero in on a place where I think Charles was just going, which is, in terms of the value calculations that were used to create this deal, can you give us any insight into the math that was used that translated into these milestones? And can you talk a little bit about the royalties as well?

Sure. The milestones are some initial development milestones combined with the vast majority of milestones based on sales of the product. As I referred to in my answer to Mr. Duncan, you have information with regard to how those are calculated. Could you sort of make your question a little more targeted?

Yes. In terms of the mathematics, what was the peak value that was used? And how did they discount it back to get to those milestones? I'm trying to get at the core of it.

Sure. I would need to, again, confidentiality prevents me from talking about what the projections that we have on the peak sales are. But I think it's fair to say that the agreement contemplates the possibility of blockbuster status which is something that we have always believed was possible given the needs in the market and the lack of products that compete effectively against us.

Can I ask this question then, how do you balance the opportunity in the U.S. versus the opportunity -- and clearly, they have a big interest in Asia? And the reason why I ask the question is because there's a very different social paradigm around depression, suicide in Asia versus the U.S.? So help we understand kind of the thinking there?

Yes. That is extremely helpful in clarifying that question. Now I understand what you're saying. Yes, I think the market in the U.S., we estimate to probably be -- again, it's up to our partner and they will take the lead. But our company has estimated that the U.S. is a substantial chunk of the market, 80%, 85% of the market would be in the U.S. and that foreign markets would be a smaller portion of that market. Again, where the company is powerful as Alvogen and its -- and Lotus and its partners, maybe that gets changed a bit but there are different treatment paradigms in the U.S. versus abroad. And I think it makes the U.S. definitely the strongest market for our product.

Jason, just to amplify that a bit. It's important to recognize that the values we're talking about here are associated only with the suicidal depression indication. And as you've discussed, perhaps 1 million Americans have suicidal bipolar depression, another 6 million or more have chronic intermittent bipolar depression without active suicidality. And then you have the 12 million people with PTSD and the 30 million people with chronic pain. So while we're fairly excited about this opportunity, there's also a lot more opportunity out there should the drug prove itself in other indications.

And Jonathan, just to add on to that, they have the first right of refusal on those additional indications. Is that correct?

First right of negotiation is what's there in the press release.

Our next question comes from Vernon Bernardino from H.C. Wainright.

Stephen and Jonathan, congratulations also from me on us putting this deal together. I just wanted to ask about the total deal milestone terms that is the $330 million. Now it says milestone payments of increasing amounts up to $330 million. I assume that even though sales targets perhaps are reached beyond initial targets, for example, that the total payments you would get is just $330 million. And any upside would be from royalty payments that you said would be 12% to 16%.

Yes.

And you would reach the 16% level when you reach the highest sales targets?

Again, I don't want to break down how -- the [ ratchets ]. But as we approach the highest sales targets, you'd get to 16%.

Okay. And can you at least break down for us, reaching that is $330 million, which -- what milestone would actually get you to the last milestone payment in this deal structure?

The last milestone payment would be on sales over $1 billion, I think.

Okay. Great. That's very helpful. Just wanted to drill that a little further as far as Charles and Jason's question is concerned. Appreciate the further insight. And congrats again, looking forward to this drug getting developed quickly. And so they have -- that those who are...

Thank you. I think Alvogen is going to be a very strong partner. I mean, they bring a lot of regulatory and commercial expertise to us. And again and then, of course, they pay all of the costs of the Phase III and the commercialization. So we think it's a very attractive deal for us.

[Operator Instructions] And our next question comes from Matt Kaplan from Ladenburg Tallman.

Matt Kaplan, how are you, sir?

Congratulations on the deal. You mentioned that the ongoing clinical development is going to be funded through your partner. Can you give us a little bit more detail in terms of what would define success in the ongoing Phase IIb/III study to trigger the continued payment of development by Lotus [indiscernible] Alvogen in the next Phase III?

Sure. Success would be our clinical endpoints, which were the same as in our STABIL-B trial which was the Phase II trial that we did previously. And it is a statistical improvement over lurasidone by itself on the MADRS scale as well as with regard to the [indiscernible] suicidality scale. But basically it's -- there are some numbers that have been projected. But Alvogen has the right to just move forward on the basis of the results that we get, hopefully, by no later than the fourth quarter of this year. Jonathan, did you have any comment on that?

No, I think you've summarized it extraordinarily well. This certainly provides us with a platform to start to deliver on the additional indications that we've been talking to investors about.

All right. Thanks for the added detail and congrats again.

Your next question comes from David Greenberg, a private Investor.

Congratulations on the partnership. Having witnessed so many new partnerships in the industry and -- so it's great to see this. I understand that last week at ACNP, there was a public exchange between NRx and the FDA. Can you comment on what was said there?

This is Jonathan. Certainly, a public forum like the American College of Neuropsychopharmacology is not a regulatory meeting. It's an opportunity for the scientific public and the FDA to exchange views. And one of the topics that came up was proven need for a coherent policy around NMDA antagonist in the most vulnerable patients. And how does the FDA decide to deal with use of ketamine, which right now is only approved as an anesthetic. And the FDA made the public suggestion that this would be ripe for a public patient-focused drug development meeting and historically, those meetings have been ones where the FDA together with patient advocacy groups, patients and pharmaceutical sponsors get together in order to map out a path forward in a manner that really serves the public's health.

This concludes our question-and-answer session. I would like to turn the conference back over to Matthew Duffy for any closing remarks.

Thank you, Jason and thanks, everyone, for joining us this morning for this important announcement. This concludes the NRx Pharmaceuticals conference call. Thank you for participating.

And thank you for your interest in NRx.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.