Flex Pharma Reports Third Quarter 2016 Financial Results

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Flex Pharma, Inc. (NASDAQ: FLKS), a biotechnology company developing innovative and proprietary treatments for nocturnal leg cramps (NLC), spasms associated with severe neuromuscular conditions such as multiple sclerosis (MS) and amyotrophic lateral sclerosis (ALS), and exercise-associated muscle cramps (EAMC), today reported financial results for the quarter ended September 30, 2016 and provided an update on its clinical development, consumer product launch and corporate activities.

"Over the past year we have gained important insights from our exploratory studies that will inform our human efficacy studies moving forward," said Flex Pharma Chief Medical Officer Thomas Wessel, M.D., Ph.D. "Our single agent candidate, chemically synthesized, TRP ion channel activator, FLX-787, has been studied in over 100 human subjects treated for several weeks at therapeutic doses, which provides an unusually extensive human safety and efficacy experience for an agent at this stage of development and bodes well for our Phase 2 studies."

"Our drug development efforts with FLX-787 in NLC, MS and ALS continue to advance," stated Christoph Westphal, M.D., Ph.D., Chair and CEO of Flex Pharma. "Flex is well funded through late 2018, and we remain committed to executing upon our mission of helping patients and consumers who suffer from debilitating cramps."

"On the consumer side, in just a few short months, we have over 15,000 unique customers and well over 50 professional and collegiate teams that have ordered HOTSHOT, representing a wonderful early platform for the brand," noted Kathie Lindemann, Chief Operating Officer of Flex Pharma. "The performance of HOTSHOT in its first full quarter post-launch demonstrates a healthy start to the consumer business, following our cult brand strategy targeted at endurance athletes."

Recent Business Highlights
  • Clinical Efforts
    • The Company initiated an exploratory Phase 2 study in ALS patients in Australia in September. The randomized, controlled, blinded, cross-over study is designed to evaluate the safety and efficacy of FLX-787 in up to 50 patients who suffer from cramps, spasms and/or spasticity as a consequence of ALS. In June, the Company initiated a similar exploratory Phase 2 study in MS patients with FLX-787.
    • In October, the Company provided a NLC regulatory and clinical update for FLX-787, a topically-acting, selective transient receptor potential (TRP) ion channel agonist: (1) In written responses to the Company's pre-IND meeting request, FDA indicated that cramp frequency "could be an acceptable primary efficacy endpoint." FDA also recommended that the Company utilize a parallel design in a planned IND-opening study. (2) While statistically significant results were seen in some, but not all, of the crossover endpoints, FLX-787 has shown positive signals on muscle cramping in the parallel design portion of two exploratory human proof-of-concept NLC studies. Data from these exploratory studies, and a statistically significant sigmoidal dose-response curve in a human electrically-induced cramp study, supports further evaluation and development of FLX-787 in subjects with NLC and other indications. (3) The Company is planning a parallel design Phase 2 study in NLC to be initiated in the first half of 2017, after its IND application has been accepted.
  • Consumer Product (HOTSHOT)
    • In its first full quarter post-launch, HOTSHOT recorded approximately $586,000 of net product revenue.
    • As an official sponsor of the 2016 IRONMAN® World Championship in October, HOTSHOT was sampled at the IRONMAN Village throughout the week and available on the race course. More than 25 athletes represented TeamHOTSHOT on race day. HOTSHOT will be sampled at the upcoming New York City Marathon.
    • In July, The Wall Street Journal published the article, " A New Way to Prevent Muscle Cramps", discussing the breakthrough science behind HOTSHOT. The article was a top ranked story on wsj.com for a week. HOTSHOT has also been featured in several subsequent publications: Wired.com, Men's Fitness online, LAVA Magazine (official magazine of IRONMAN), Esquire online and The Daily Burn.
  • Corporate Highlights
    • In August, W. Larry Kenney, Ph.D., Professor of Physiology and Kinesiology at Penn State University, joined the Company's Scientific Advisory Board. As the Marie Underhill Noll Chair in Human Performance and Professor of Physiology and Kinesiology at Penn State University, Dr. Kenney's research is focused on human physiological responses and adaptations to exercise and extreme environments. Dr. Kenney served as President of the American College of Sports Medicine from 2003-2004. He serves on the American Council of Exercise Scientific Advisory Panel, Nike's Science Advisory Board, and chaired the Gatorade® Sports Science Institute for several years. Dr. Kenney received his Ph.D. in Physiology from Penn State.

Third Quarter 2016 Financial Results
  • Cash Position: As of September 30, 2016, Flex Pharma had cash, cash equivalents and marketable securities of $67.3 million. During the quarter ended September 30, 2016, cash, cash equivalents and marketable securities decreased by $7.5 million.
  • Net Product Revenue: Net product revenue for the three months ended September 30, 2016 was approximately $586,000.
  • Cost of Product Revenue: Cost of product revenue for the three months ended September 30, 2016 was approximately $221,000 and included an inventory reserve of approximately $33,000.
  • R&D Expense: Research and development expense for the three months ended September 30, 2016 was $5.7 million. Research and development expense for the third quarter primarily included costs associated with the Company's clinical studies of FLX-787, IND-supporting activities, personnel costs (including salaries and stock-based compensation costs), and external consultant costs.
  • SG&A Expense: Selling, general and administrative expense for the three months ended September 30, 2016 was $5.4 million. Selling, general and administrative expense for this quarter primarily included personnel costs (including salaries and stock-based compensation costs), sales, marketing and fulfillment costs related to launching the Company's consumer brand and product, legal costs, and external consultant costs.
  • Net Loss: Net loss for the three months ended September 30, 2016 was ($10.6) million, or ($0.65) per share. Net loss for the three months ended September 30, 2016 included $1.9 million of stock-based compensation expense. As of September 30, 2016, Flex Pharma had 16,518,347 shares of common stock outstanding, which excludes approximately 1.4 million shares of stock that remain subject to vesting. The net loss for the third quarter of 2016 was primarily driven by the Company's operating expenses related to its research and development efforts, costs associated with the development and launch of the Company's consumer brand and product, and general and administrative costs.

Financial Guidance

On the basis of Flex Pharma's current operating plans, the Company expects that its current cash, cash equivalents and marketable securities position will be sufficient to fund its operations through late 2018, assuming no receipt of proceeds from potential business development partnerships, equity financings or debt drawdowns.

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