Soleno Therapeutics, Inc. (SLNO) Earnings Call Transcript & Summary

Yes. Good afternoon, guys. Thanks so much for joining us here at the Goldman Sachs Global Healthcare Conference. Pleased to be joined today by the CEO from Soleno. Maybe first, if you could just introduce yourself and provide a quick overview of the company, that would be particularly helpful.

Sure. Thanks for having me. I'm Anish Bhatnagar, I'm the CEO of Soleno. Soleno is based in the San Francisco area. We're about 60 people. We used to be about 30 people 6 months ago. We work in the rare disease space, mostly or primarily right now in the disease called Prader-Willi Syndrome, which I'm sure I'll tell you more about later. But we announced positive Phase III data in the indication about 6 months ago, and we're expecting to file with the FDA around the middle of the year.

Beautiful. As you said, I'm going to ask more about Prader-Willi Syndrome. Sorry, there's a strange beeping. In terms of Prader-Willi, like what is it? How is it expressed? How many patients? Give us just kind of the lay of the land.

Sure. So Prader-Willi Syndrome is a genetic disease. It's a genetic complicated neurobehavioral abnormality, which happens 1 in 15,000 live births by chance. And it happens spontaneously, so it's not inherited. In general, it's the same regardless of geography or ethnicity. So it translates to about 10,000 to 20,000 patients in the U.S., with 9,000 said to be confirmed. And it's a disease which is, today, at least in the developed world, diagnosed around the time of birth. And the reason is that the kids that are born are born with very low muscle tone. They're floppy babies. You kind of pick them up in the palm of your hand and they'll drape over on both sides. So it's something that gets picked up by the physician, the kids will go to the NICU. They'll get a bunch of tests. And one of those tests will be DNA methylation analysis for PWS. So within the first few weeks of life, the family will be told they have a child with PWS, and they'll also be told that not much can be done for them. All of these kids will be on growth hormone because they are growth hormone deficient. The only thing that will do for them is normalized stature. It won't do anything for the hallmarks in terms of the disease, which start to develop as the kids grow older, so around the age of 3 or 4, they start to show more of an interest in food. They'll have a disproportionately high amount of body fat and low lean body mass. By the age of 7 or 8, virtually all of them will have the hallmark symptom of the disease, which is hyperphagia. Hyperphagia is an insatiable desire to eat. These are kids who will eat themselves to death, if you don't stop them. Four pizzas, 20 cookies, things that are not food, whatever comes their way. So all of these kids will have significant behavioral abnormalities in addition to the hyperphagia. When you deny food to someone whose brain is telling them they're starving, they tend to be aggressive and destructive. And in general, none of them will ever lead a life that is not supervised. Terrible disease, disease more of the family as well. Unaffected siblings have PTSD, families have trouble staying together with very high divorce rates. One of the biggest unmet needs in the rare disease world.

Right. In terms of standard of care, you sort of alluded to it, but maybe you could just expand on what is the current standard of treatment for this patient population?

Really the only thing that's approved is growth hormone. Does not affect the hallmark symptoms of the disease. The only thing you can do for hyperphagia is restrict access. So these kids live in houses with locked refrigerators and pantries and trash cans. They don't go to birthday parties or restaurants. They -- generally, as they grow older, they have significant psychiatric abnormalities. So they will be on multiple psych meds. More than half of them will have at least 1 psych med. None of those things really work. So yes, there is a standard of care, but it doesn't really involve much treatment.

Okay. So maybe that's a good segue to your drug, which is DCCR. There was positive data, as you said, in Prader-Willi Syndrome. Maybe first, can you help us understand the mechanism of action of that drug and why it's relevant to patients with this disease?

So DCCR works on what's called the KATP channel, or the ATP-dependent potassium channel. This is a channel that's present on many different tissues in the body, most relevant to the hyperphagia part of PWS. It's present on the neurons that control appetite. So these are the NPY neurons in the hypothalamus. They secrete a peptide called the NPY peptide that increases appetite. So when normalizing the activity of those channels with DCCR, you can actually decrease the secretion of the peptide, which decreases appetite. The same channels are also expressed on many different tissues. So for example, adipocytes, fat cells. By activating the channels there, you can increase the catabolism of existing fat and you can decrease the formation of new fat cells.

What other features of the drug design would you highlight as important with respect to safety or dosing convenience, et cetera, that you think are important for the target product profile of this drug and the disease?

So it's a once-a-day pill, so that makes it much simpler. It is based on a known parent molecule, which is an oral suspension, which is given 2 to 3 times a day. It needs to be given at very high doses in order to have enough of a free diazoxide concentration. So the novelty here is that this is based on a salt of the drug. So it's the choline salt of the known drug which allows for a much higher solubility and it allows for us to get efficacy at doses that are 1/2 to 1/3 of what's typically used today with the original drug.

Okay. Prader-Willi Syndrome has been -- we were kind of discussing this before. It's been a really challenging indication for drug development, but you have had success across a large Phase III program at this point. Maybe walk us through the design of the holistic Phase III program.

Right. So we designed this program in 2017, 2018. We started the original Phase III program in the middle of 2018. So this was a 2:1 randomized, 127 patients, 29 sites, U.S. and U.K. study. It was a 13-week randomized double-blind study. The data -- top line data was announced in the middle of 2020. This is June of 2020. Interestingly, the primary analysis was not significant at that time. It was unclear to us why that would be the case because the secondary end points, like change from baseline and body fat was significant. We were seeing open-label data because all the patients were rolling into the open-label extension study. The data showed very significant benefits there. So at the time, we didn't realize it and nobody realized it, but the pandemic was indeed a thing. And when that became clearer, we realized that the agency had allowed other sponsors to use the cutoff of March 1 to do what's called a pre-COVID analysis. So when you do the analysis of the data, excluding the COVID-affected data point, the study was indeed positive, primary as well as all the key secondaries. So [ we're running ] along back and forth with the FDA on, is this significant? Is this not significant? And in their final opinion, they could not exclude an artifact. So we then showed them 1 year's worth of open-label extension data, which shows remarkable improvements in hyperphagia. We also compared it to a natural history study, which is a contemporaneous study, which is being done by the Foundation for Prader-Willi Research. All of those analyses were highly significant. At the end of that conversation, they believed that we needed to generate additional control data, so we offered to them to do a randomized withdrawal of the patients who had been on drug for, at this point, between 2.5 and 4 years. Somewhat brutal, but it was the right thing to do. It was one way of generating meaningful data quite quickly. And we kind of socialized it with the families who had kids on the study. We talked to the advocacy organizations. We talked to the investigators. And we did the randomized withdrawal, and those are the results that we have now.

Okay. So the primary end point, I think, was hyperphagia, but maybe you could talk a little bit more specifically about what the primary end point is, how it's measured and what you showed more specifically.

Yes. So hyperphagia, obviously is subjective. There's no scan you can do for hyperphagia. So you've got to figure out how to measure it. And for many years, there's been an effort to create a caregiver-reported outcome questionnaire, which would measure hyperphagia. It needs to be caregiver-reported because these kids have significant impairments in cognition. So average IQs are in the range of about 70. You can't really rely on their reports. So this caregiver-reported questionnaire is something that has been validated with the FDA. It's a 9-question questionnaire. Each question is scored 0 to 4. The worst hyperphagia is 36. So just to -- for example, most studies require you to have some level of hyperphagia. So 13 was the minimum in our study, which is fairly typical. And the mean was actually 22 out of 36. So pretty bad hyperphagia. These are probably kids who are definitely not being able to live in circumstances with food around, et cetera. At the end of the open-label study, when we did the randomized withdrawal, the average number was 8. These are patients who had not enough hyperphagia to get into any hyperphagia study, so very significant benefits.

Okay. And you've talked about you also have reported data at longer time periods, 26 to 52 weeks. I guess, talk to us a bit about how the data evolves with patients [ and ] therapy over time?

Yes. One of the interesting findings in our data set was that the drug seemed to work slower than we thought. So the effects seem to increase until almost 9 to 10 months. So we saw increasing effects until then, then we saw a plateauing of effect at about minus 10, which is more than a 50% improvement from baseline. And you can see that in the patients. So anecdotally, we've heard patients kind of normalizing in school, not having tantrums anymore, having the ability to go buy groceries with the credit card from the family, which was unheard of, be in situations where food is being served normally. So that's what it reflects, the improvement of 7, 8 points.

Okay. In terms of the withdrawal study, how quickly do you see the hyperphagia reemerge after patients come off drug?

If you look at our data, we don't see any separation at 4 weeks. We start to see a significant separation at 8 weeks, but it doesn't hit a p-value of less than 0.05 then. At 12 weeks, it's 0.002. So it's a gradual separation, which computes, because this is a drug that has a long terminal half-life. So you would expect it to take some time. They just don't fall off a cliff. It matched what we would have expected.

Okay. One of the things that, that kind of study then made me think of is just like how do you think that will affect real world utilization, compliance and adherence with the patients.

The compliance in this study has been extremely high. And interestingly, this is a population that's often obsessive compulsive. They actually want to be on a schedule. So if they take a drug, they want to take the drug. So we expect high compliance going in.

Okay. That's interesting. Another thing you reported in this study was body fat mass by DEXA scan at week -- I think at visit 7 in the initial program. What did you see at that stage of the study?

So this is based on DEXA scanning. So it's not something that's a physical measurement. But the interesting thing that we've been seeing consistently throughout the program is also an increase in muscle mass. So not only do we see decreases in fat mass, we see increases in muscle mass, which translates to often not a loss in weight, but a loss in fat mass only, which is sort of the opposite of what you would expect with something like a GLP-1, where you're seeing very significant decreases in lean mass.

Okay. And then subsequently, in the open-label extension, how has kind of the DEXA scan or the body competition data evolved as patients remain on therapy?

Generally speaking, we have very significant improvements in lean body mass to fat mass ratios. Because these kids, young adults, are deficient in lean mass and have too much fat mass. So we see a reversal of the effect in the long-term DEXA scans.

I'm just hypothesizing here about patients. They're, I think, a median of 13 when they come under the trial. So as you look at like weight loss, et cetera, I imagine that's confounded by them growing. So I guess what should we know with respect to like the changes in BMI, et cetera, over time?

Yes. So that's a really good point because there's been this interesting argument even at the FDA early on that should wait via co-primary. And in fact, one of the earliest programs in this space was a company called Zafgen, which had weight as a co-primary. But it was realized that if you restrict access to food, you can actually have patients who are not obese. So in general, no studies have co-primaries of weight anymore. And in our program, in particular, we don't stress on the weight part in the long-term studies because of exactly as you pointed out, these are growing kids. You need them to eat and put on some weight. But if you look at our randomized withdrawal data in the short study, you see placebo putting on significantly more weight.

Okay. In terms of the other end points you studied, there was end points related to behavioral changes, other metabolic markers, clinical impression of improvement. I guess which of these would you highlight as particularly important to patients or are particularly robust in the study?

I think the most important ones other than hyperphagia have to do with behavioral end points. So we have -- there's a questionnaire called the PWS profile questionnaire, which tracks 6 different behavioral domains. So things like aggression, obsessive compulsive, et cetera. And we have, in our long-term studies, seen consistent improvements in all of these behaviors across the board. So I think when you think of the family, which is really the observer here and is living with the patient, to them, things like aggressive behavior improvements are really big deal.

Yes. Okay. What about the metabolic markers?

Less so for the family or the patient. They don't really care much about those. But from our perspective, the changes that we are seeing, so decreases in leptin, increases in adiponectin, are actually very consequential because they are representative of, a, improvements in insulin resistance, which are really important in these patients, but also improvements in morbidity related to obesity, et cetera. There's data that suggests that when you look at adiponectin to leptin ratios, if you have those ratios increased, and we are seeing those increase consistently, you have a better prognosis on a long-term basis.

Okay. And as you look at both the open-label extension as well as the randomized withdrawal, I guess what else can you share in terms of those other end points?

So across the long-term data as well as the randomized withdrawal -- well, we didn't do the metabolic markers in the randomized withdrawal, but we did them in the long-term data, which is where they're most relevant. We see highly significant decrease in leptin, highly significant increases in adiponectin, very effective suppression of insulin, which is a really good pharmacodynamic marker, and we also see improvements in HOMA-IR, which is insulin sensitivity.

Perfect. And in terms of tolerability, I guess can you talk about some of the adverse events that you saw? What are the most frequent and kind of what's the severity level that you're seeing in the studies?

Three things to watch for. One is hypertrichosis, which is increases in body hair, peripheral edema and hyperglycemia. A vast majority of the events are Grade 1, 2s. We have had no Grade 4 or higher events. So it's a safety profile that makes a lot of sense in a disease like this. We see rare discontinuations for adverse events. They do happen, but literally just a handful.

Can you provide the percentage there?

We've -- there's many different ways of looking at how many have discontinued because of various adverse events, but I'd say there's probably 2 in our entire program for hypertrichosis. My guess is less than 10 for hypoglycemia and peripheral edema.

Okay. Great. Maybe the patent portfolio, recognizing, I think, this is a molecule follow-on from, as you mentioned earlier, a solution. What's the patent suite around the drug?

Three families of patents that we are prosecuting in all major markets, primary cases in all 3 issued, the most important one, the composition of matter. The primary exploration is at the end of 2026. There is potential for extension of that until about 2034 if you apply PTE, and PTA applies to it. We also have issued method patents in the 2035 time frame -- expiring in the 2035 time frame.

Have you made a decision yet around which patent you'll apply patent term extension to? Or are you thinking about optimizing that?

Yes, it's a good question and not one we can answer today. I think it depends on many factors, including application of PTA or not, what the Orange Book listable patents are from the aggressive behavior patent domain. So all of that needs to be figured out before we decide. But we have some time.

Okay. So as we think about the range of potential outcomes, I guess how do you guide investors to think about what's kind of the short end and the longer end of where this patent portfolio could go?

So I think there's 2, 3 ways to think of it. One is, obviously, we have orphan designation in the U.S. as well as in the EU, so minimum of 7 years there. We have issued patents that go into the 2035 time frame. If you apply extensions to the method patents, they could go into the late 2030s, but that would make sense if they are Orange Book listable. And the extension, the possibilities for extension on the composition patent range from 5 years to about 7-plus years based on whether or not PTA and PTE are applied to them.

Okay. Great. In terms of filing, you mentioned at the beginning of the conversation that you plan to file midyear, so hopefully, any day now is what remains to be done in terms of getting the regulatory patent [indiscernible].

Writing, reviewing, signing off. It's kind of what we're doing. The work is all done. This is -- many of these things end up being sequential. So that's kind of where we are.

And in terms of 6 versus 10-month review time line, what do you expect? Or do you have an expectation there?

We meet the criteria for priority review. We -- it's an unmet need. It's fast track designated. It's a breakthrough designated, but at the end, the FDA has to decide if they'll give it to us or not.

And remind me, because you probably have shared this in the past, but in terms of the age of patients that you could go down to recognizing these patients are diagnosed at birth, how low did you go to study? How low would you expect the label to go?

We went down to 4 in the study, and that's where we expect the label to be. Typical hyperphagia sets in a little later, but there are cases where it's earlier.

Okay. So that's kind of consistent within patient-experienced symptoms.

It would be rare for someone who is younger than 4 years to have hyperphagia.

Okay. That's helpful. Maybe in terms of commercialization then, you mentioned at the outset the number of patients with Prader-Willi Syndrome. But I guess, could you help us think about the market opportunity here with respect to the addressable patient population?

Statistical estimates are between 10,000 and 20,000. The best published estimate for patients is an academic abstract from Colorado. It says about 9,000. The authors admit it's likely the lower bound of prevalence, and we agree that's likely the case. In terms of the placement, the market size, et cetera, we think that about half of these patients are probably in the adult zone, the other half are pediatric. Half the patients are seen by mostly pediatric endocrinologists, about half of them are seen by either adult endocrinologists or psychiatrists. So that's kind of the general distribution.

And are these patients primarily seen at centers of excellence or academic settings? Are they seen out in the community by endocrinologists closer to home. How does that work?

So it's both. There's definitely KOLs in the country where I would say a lot of these patients are being seen 1 to 2 times a year. They'll take a flight or a long car driver to see the KOL once or twice a year. But they'll also have a local ped endo or a local physician who's taking care of them. In terms of the primary prescriptions, there are really not very good comps on that because growth hormone is the only thing that's being prescribed. So we think that the general pattern is likely to be the KOL suggesting the drug and either writing the script or suggesting that the peripheral endo write the script.

So in terms of commercial infrastructure, I guess, what do you think you need to have in place in order to support the launch of this program?

It's a finite commercial infrastructure as we see it. We see a total of about 40 to 50 people. We have kind of the leadership team almost completely in place at this time. We expect about 20 of these to be sales reps, which will come on towards the end. But as of now, we have head of commercial analytics, the head of market access, med affairs and marketing all in place, and a Chief Commercial Officer, obviously. Probably have field medical next, the MSLs, et cetera, and eventually the more sales type of people coming towards the latter part.

Okay. In terms of like current level of awareness of this product or like potential for there to be a bolus on approval, I guess how do you guide investors to think about the near-term adoption once the drug comes to market?

So there's definitely very high awareness of the drug. This is a pretty organized advocacy community. There's regular conferences, there's Facebook groups where they talk all the time, et cetera. So there is a very high level of awareness. In terms of bringing people on drug, as you know, we have several patients who are on an open label extension study already, and we expect that those will be ones that are more likely to be on commercial drug earlier rather than later. In general, we have to see how the launch gets structured, because this is the first product to be launched for this community. We have to prep both the physician as well as the patient community for it. There's no doubt in my mind that the peak of this is going to be very meaningful. How the ramp goes is something that needs to be seen.

Maybe on that question like the price point. I guess what analogs would you point to as irrelevant as you consider potential pricing for this market?

So we try to stay away from a number but try to talk in brackets. So the lower end, if you look at the last couple of years of relatively similar drug approvals, the lower end is something like Amylyx, like $140-ish. High end is something like [ Debut ], which is like $530, $540. More in the middle of setmelanotide, about $360, Aclaris, about $370.

And in terms of like the coverage distribution or patients primarily being covered by Medicaid, presumably not that much Medicare commercial coverage.

Work in progress. We'll be able to provide more details on that in the coming months. But there's definitely commercial as well as Medicaid, some Medicare as well. We are seeing patients living longer than they were used to. We recently became aware of a 71-year-old patient. So it will be interesting.

Okay. And in terms of like the patients, finding them, et cetera, knowing where they are, I guess, how would you characterize the level of your visibility into who these patients are, where they are, such that you can get them on therapy relatively quickly?

So when we look at the claims data, we're seeing the patients that the abstract talks about, like the 9,000 plus, they're there. They're visible. So I think that, that is not going to be as much of an issue because, especially if you're born in the last 15, 17, 18 years, you were diagnosed with a genetic diagnosis. It's the substantially older patients who may not have a genetic diagnosis but have more of a provisional diagnosis. But the provisional diagnosis for PWS should be pretty good, so we think even those patients are not going to be that hard to find. There are some interesting situations such as the older patients living in group homes, which is kind of typical of PWS beyond a point, but is not something that's seen in other disease states. So we have to figure out how to address those patients. It's kind of a challenge and an opportunity. A challenge because it hasn't been done before, an opportunity because there are clusters of these 30, 40, 50 patients who are in a single location.

Okay. You kind of, I guess, are talking around this question. But as you think about the friction to the early launch, like what are you prepared to kind of see in terms of infrastructure that you might need to get in place? Patient identification, coverage, whatever it may be. What are those frictions that you anticipate, and how can you prepare for them?

So all of the ones you mentioned. So I think access is a big thing. So we have a head of market access who is experienced with rare disease stuff who's come on board already, and we have plans to bring on field access people who will be helping. We will definitely make sure that patient finding is a priority for us. That's another effort that's already started. And then also making sure that there's awareness, so disease state education is key. Obviously, KOLs are well aware of both the disease hyperphagia as well as the drug, but at the end of the day, we need to make sure that we're able to reach peripheral endos as well. And we have an effort that's about to start where making people more aware of what hyperphagia is about, how you treat it, et cetera, is something that is going to be a priority for us.

Okay. As you look at the competitive landscape or kind of development landscape in Prader-Willi Syndrome, is there anything out there that you're monitoring? And how do you think about how that market could evolve over time?

So the only thing that's late stage right now is a drug called carbetocin. It was a drug that was originally developed by Ferring many years ago. It was a private company that bought it and ran a Phase III study with it. It was a 2-arm study versus placebo. The lower dose did better than the higher dose. The FDA said don't submit, they submitted it. The FDA gave them a CRL. Company went away. The drug is now with Acadia who's running a study of the lower dose versus placebo. It's a 3 times a day nasal product that needs temperature control, so somewhat complicated, I would imagine. But I think there's space for more than one product in a situation like this. This is a complex disease. I don't expect just one drug, ours or any other, to solve everything. So there's plenty of space for other products. But that's really the only late stage one.

Whenever you talk about weight or obesity, anything even directionally close to that, obviously, the hottest topic in health care is GLPs. I guess I see this question a lot in my coverage of other companies, like do GLPs work for patients with Prader-Willi Syndrome? Why or why not? And what do you anticipate with respect to their use in that population? You smirked, so I guess this is a question you get way too often.

Yes, I get it once a day at least. It's an interesting situation because there is one large randomized study of an older GLP, which is liraglutide, published in JCM about a year ago, which was negative. So that's one data point. There's anecdotal information of ones and twos of worked well, lost weight, didn't feel hungry, that sort of stuff. But in reality, the way GLP-1s work is by decreasing gastric emptying, which in PWS can be catastrophic. Because one of the worst possible outcome, the acute outcome, in PWS is gastric rupture. So you can imagine a situation where you have a centrally-driven hyperphagia, your brain is telling you you're starving and you're slowing your gastric emptying. You eat 4 pizzas. Your stomach lining will rupture. So that's very relevant to PWS. There are many KOLs who believe this is a significant problem, and it should not be used in PWS, but we do see use in PWS. It's unclear how much of that use is for glycemic control versus weight loss. Because what you're solving for here is not weight. You're solving for behavior.

So would there be a role for combination, given you're kind of solving the hyperphagia question, then maybe you add on a GLP? Or you don't see that as...

So if I go by what the KOLs are telling me, many of them are concerned with the use of GLPs because of the side effects of gastric necrosis. Recently, we were just talking about a case last week in Florida. It is truly a catastrophic outcome. So you don't want that to happen. So if today, someone asked me, I'd say, if you have to combine them, I would be very careful. There's one more element to it, which is that PWS patients have low lean mass, and GLP-1s decrease muscle mass. So it's not a great combination of things.

So not a good fit for this market?

In my opinion.

Got it. Beyond Prader-Willi Syndrome, are there any other indications that you think are of interest for this mechanism?

Two categories. One is diseases like PWS. So for example, 10% of Fragile X have a PWS phenotype. A meaningful number of patients with Angelman have hyperphagia. There's a number of other obesity-type conditions that have hyperphagia in a similar way as PWS. So that's one series of indications. The other is diseases where hypoglycemia is a problem. So for example, the parent molecule is used in hyperinsulinism. There's a big unmet need there because of the shortcomings of the parent molecule. And then GSD1A, where you need to keep glucose levels above a certain limit, and these people are eating complex starches multiple times. This is really interesting area we have an internal effort right now to figure out.

[indiscernible] runway and sort of what you're funded [indiscernible] current cash position and runway? And what is included in that [indiscernible]?

So we -- I think our last pro forma cash is over $300 million [indiscernible] to being cash flow positive, assuming reasonable scenarios. And what we include in that is the ability to be more aggressive than we had initially envisioned from a commercial perspective. So we're really pulling out all the stops on the commercial side to make sure that we can have a launch that makes sense.

So when you have money, you don't need it, the question becomes how will you spend it. So as you think about capital allocation, particularly as you move towards profitability, how will you think about kind of allocating business development versus internal pipeline or expanding the indications like we just discussed?

Our priority will be -- to the extent we are doing something beyond PWS, the first priority would be other indications for the drug. I think it makes a lot of sense. It's a drug we understand well. I also think that eventually, it doesn't make sense to be a single product commercial entity. So we definitely look at things all the time. These are things that are adjacent [indiscernible] for rare, endocrine rare. We look at those all the time. So I expect there will be a combination of those things, but the priority being other indications.

I think that's a great place to wrap up, and through my questions. Thank you again to everyone who joined us both here and on the webcast, and thank you so much for joining this afternoon.

Thank you.