NeurogesX net loss for second-quarter 2010 increases to $10.2 million

Aug 7 2010

Recent Highlights:

• Qutenza launched in April 2010
• Qutenza available and/or on formulary at 60 U.S. hospitals
• Astellas initiates Qutenza E.U. launch in Germany, Austria, and the UK
• Completed $40 million royalty based debt financing

Upcoming 2010 Milestones:

• Qutenza launch in additional E.U. markets by Astellas
• Initiation of Phase 2 clinical trial of NGX-1998 in PHN patients

NeurogesX, Inc. (Nasdaq: NGSX), a biopharmaceutical company focused on developing and commercializing novel pain management therapies, today reported results for its second quarter ended June 30, 2010.

During the second quarter of 2010, NeurogesX initiated the U.S. launch of Qutenza® (capsaicin) 8% patch for the management of neuropathic pain associated with postherpetic neuralgia (PHN), through targeted physician outreach, in-office training, and support for patient access to treatment and reimbursement. During the early launch phase, the NeurogesX sales team is focused on targeting hospitals, pain centers, and private pain specialists to establish a national network of Qutenza-experienced physicians (Qutenza Practice Referral Optimization or "QPRO" Centers of Excellence) that can provide treatment and serve as referral centers for PHN patients.  The Company continues to progress with its reimbursement strategy which has three primary elements: 1) obtain coverage under medical benefit (Medicare Part B and private payers) for Qutenza; 2) establish coding for both Qutenza and the application procedure; and 3) provide customer billing support through the Insight:Qutenza Reimbursement Support Program.

Anthony DiTonno, President and CEO, commented, "A primary goal of the U.S. Qutenza launch is to maximize long-term value by creating a positive initial experience for both physician offices and their patients. This process will take time to execute but the early feedback suggests that we are on the right path.  I am very pleased with the progress we have made in regards to our reimbursement strategy, which is creating access to Qutenza for PHN patients, as well as the performance of our sales and marketing team in implementing our QPRO strategy.  I believe we are currently building the foundation that will enable Qutenza to become a significant option for physicians when treating their PHN patients."

In the European Union, Qutenza was launched in the second quarter 2010 by NeurogesX' commercial partner Astellas Pharma Europe Ltd. (Astellas), and is now available in Germany, Austria, and the UK with initial launch activities focused on intensive site training. During the second half of 2010, Astellas plans to launch Qutenza further into more European markets increasing their presence in the pain management arena.  

Moving into the second half of 2010, NeurogesX plans to resume clinical development of NGX-1998, a second-generation liquid formulation of high-concentration capsaicin. Preparations are underway to initiate a Phase 2 adaptive-design clinical study in PHN patients to evaluate the potential of NGX-1998 to provide safety and efficacy in a shorter time frame than is required for Qutenza. The Company is also continuing to evaluate its path forward with regard to Qutenza for the HIV distal sensory polyneuropathy (HIV-DSP) and painful diabetic neuropathy (PDN) indications.  The Company is scheduled to meet with the FDA later this year to discuss the HIV-DSP indication and potential paths forward for this program. For PDN, the Company is continuing to evaluate further development in light of Astellas' plans to address certain post-market commitments in the European Union.  

Second Quarter 2010 Results

Since the U.S. launch of Qutenza on April 5, 2010, the Company recorded sales of Qutenza to its specialty distribution and specialty pharmacy customers totaling $308,000, of which $33,000 was recorded as Qutenza revenue for the second quarter 2010. Due to limited history of product returns and launch-related programs, including extended payment programs, NeurogesX is deferring revenue recognition of the remaining $275,000 in Qutenza sales to these customers. Of the deferred revenue total, $122,000 was sold through to end user customers (i.e. physicians, clinics and hospitals) and the deferral has resulted from launch related extended payment terms, while $153,000 represents deferral of sales into the company's distribution channel, recognition of which will be based upon ultimate sales of those units to end user customers.  Deferred revenue is reported net of associated cost of goods sold on the Company's balance sheet.

Collaboration revenue for the second quarter of 2010 was $2.1 million, consisting of $1.9 million in amortization of upfront payments received in connection with the Astellas Agreement, and $0.2 million to reflect a difference between the carrying costs and contractual transfer price of Qutenza supply sold to Astellas. Under the Astellas Supply Agreement, NeurogesX is obligated to supply Astellas with Qutenza at a contractually agreed upon cost for materials, related labor, and overhead, until Astellas establishes its own suppliers.

Total operating expenses were approximately $11.1 million for the second quarter of 2010, up from approximately $5.4 million in the year ago period. This increase was due primarily to an increase in selling, general and administrative expenses offset by a minor reduction in research and development expenses.  

Cost of goods sold for the second quarter of 2010 totaled $45,000 for the quarter and consisted mainly of fixed monthly charges related to our third party logistics provider for warehousing, and shipping activities during the quarter.  

Research and development expenses were approximately $2.7 million for the second quarter of 2010, compared to approximately $2.8 million in the year ago period. The year-over-year decrease of $0.1 million primarily reflected costs to support and maintain the FDA approval of Qutenza during the second quarter 2010, compared to the costs associated with obtaining the FDA approval during the year ago period.

Selling, General and Administrative (SG&A) expenses were $8.3 million during the second quarter 2010, up from $2.6 million in the second quarter 2009. This increase was due in large part to the commercial launch of Qutenza in the United States in April, 2010. Specifically, the increases included a $2.6 million increase in costs associated with our sales and commercial operations organization including salary and related expenses;  $2.1 million related to marketing materials development and other launch-related marketing costs;  and to a lesser extent, increases in our medical affairs and general and administrative functions. During the year ago period, limited pre-commercialization activities were performed as marketing authorization for Qutenza had been received only in the E.U. and was pending in the U.S.

Net loss for the second quarter of 2010 was $10.2 million, compared to a net loss of $5.4 million for the second quarter of 2009. Net loss per share was $0.58 and $0.31 for the three months ended June 30, 2010 and 2009, respectively, based on weighted average shares outstanding of 17,748,720 and 17,580,158, respectively. The weighted average shares used in computing net loss per share for all periods presented exclude anti-dilutive securities, such as stock options and warrants.  

Cash, cash equivalents and short-term investments were $67.9 million at June 30, 2010, compared to $40.1 million at March 31, 2010.

Stephen Ghiglieri, EVP, COO and CFO, commented, "We are pleased with the market acceptance of Qutenza to date. Given our approach for establishing the market for Qutenza which involves a substantial selling process that may take weeks to months to establish a Qutenza treating physician practice, metrics to evaluate success are different than your average retail pharmaceutical product launch. Qutenza represents a treatment innovation with the potential to provide neuropathic pain relief in patients with PHN and we are pleased with our progress to date."