Achieve Life Sciences Inc (ACHV) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the OncoGenex Third Quarter 2010 Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session. Instructions will follow at that time. If anyone should require operator assistance, please press star then zero. As a reminder, this conference is being recorded.

I would now like to turn the conference over to Jason Spark with Canale Communications.

Good afternoon, everyone. Thank you for joining us for OncoGenex Pharmaceuticals' third quarter conference call. The Company issued a press release today containing financial results for the third quarter and nine months ended September 30th, 2010 as well as a review of the Company's highlights for the third quarter of 2010. This release is available on the Investor Relations page at the Company's website at www.oncogenex.com. As a reminder, this call is being recorded and broadcast live on the Investor Relations page at the Company's website and a replay of the webcast will be available for 90 days.

Before we begin, I'd like to remind everyone that some of the statements made today include predictions, estimates and other information that might be considered forward looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from our predictions and estimates as a result of various risks factors, including those identified in our quarterly report on Form 10-Q filed on August 5th, 2010 and our quarterly report on Form 10-Q filed earlier today, copies of which can be assessed on our website.

I'll now turn the call over to Scott Cormack, President and CEO of OncoGenex.

Thank you, Jason. Good afternoon, everyone, and thank you for joining us. On the call with me today are members of the OncoGenex senior management team including Cameron Lawrence, our Principal Financial Officer and Dr. Cindy Jacobs, our Executive Vice President and Chief Medical Officer.

Before Cam discusses the financial results the third quarter, I'd like to discuss some of our recent business successes including the public offering we completed two weeks ago. The proceeds of our recent public offering, together with our existing cash reserves, will provide us with approximately four years of cash. We believe this puts us in a unique position as compared to many of our peers, as we now have the financial capacity to complete three Phase III trials with our lead asset, Custirsen, and complete two randomized phase two trials with our second asset OGX-427 without being reliant on the market to raise additional capital.

We also believe that this financing represents a significant vote of confidence from the investment community for our developments plans for custirsen, the partnership with Teva, the development plans for OGX-427 and the recognition that we consistently achieve our publicly fitted goals. Our fully funded development plan includes two ongoing Phase III trials of custirsen in patients with castrate resistant prostate cancer, or CRPC, as well as the Phase III trial in non-small cell lung cancer that we expect to initiate next year.

Our expanded OGX-427 development program as the second randomized Phase II clinical trial in metastatic bladder cancer, which complement the ongoing randomized Phase II Clinical trial in prostrate cancer and Phase I clinical trial in superficial bladder cancer.

As a reminder, our 2010 goals for custirsen included, number one, initiating the prostate cancer Saturn Trial, the three hundred patient Phase III trial evaluating custirsen with docetaxel retreatment at second line therapy in patients with CRPC. Number two, initiating the synergy trial, the 800 patient Phase III trial evaluating custirsen with first-line docetaxel treatment in patients with CRPC; and number three, continuing critical path initiatives including manufacturing readiness and clinical trial design in preparation for our Phase III non-small cell lung trial slated to initiate in 2011.

Our 2010 goals for OGX-427 included number one, completing accrual in our Phase I trial in patients with solid tumors; number two, reporting final data from this Phase I trial and number three, initiating a randomized controlled Phase II trial evaluating OGX-427 as a monotherapy in prostate cancer.

We're very proud of our achievements this year. Each and every goal for 2010 has now been achieved.

I would now like to discuss OGX-427 in further detail, including the rationale for selecting metastatic bladder cancer and the more prominent role that this asset will take within our product pipeline as a result of the financing efforts. As you may recall from previous discussions, OGX-427 is designed to reduce levels of heat shock protein 27 or Hsp27, a protein that is highly expressed in many types of cancer. Hsp27 is believed to be an important factor in the development of treatment resistance in many cancers.

In vitro studies suggest that inhibition of Hsp27 delayed tumor growth, increased the tumor cell death rates and is associated with negative clinical outcomes in various tumor types.

During the past several months we undertook an evaluation process to prioritize the cancer indications for additional development. We initially identified 11 cancer indications for which there was supportive data implicating inhibition of Hsp27 as a therapeutic potential. We selected eight indications as the most viable for further evaluation, including ovarian, breast, colorectal, lung, head and neck, multiple myeloma, prostate and bladder cancers. We then conducted initial assessments on the available preclinical and clinical data, regulatory environment, competitive and marketplace landscape and commercial opportunities.

While OGX-427 clearly has potential applicability and clinical rationale in various tumor types, bladder cancer was supported by preclinical data represented a clear area of high unmet need for patients and as a relatively un-crowded clinical trial arena. In addition, over the last several years very few medical advances have occurred and current therapies often induce significant side effects.

The published preclinical data generated by Vancouver's Prostate Center has shown that human bladder cancer cell lines, which over express Hsp27 are more resistant to chemotherapy and grow more rapidly than tumors not over expressing Hsp27. In contrast, when Hsp27 was inhibited by OGX-427 in these models tumor growth was delayed. Cell death was significantly enhanced and the tumors became more sensitive to Paclitaxel chemotherapy.

Based on these data, marketplace conditions and unmet patient need, we intend to utilize a portion of the recently raised capital to initiate a Company sponsored Phase II clinical trial in metastatic bladder cancer in 2011. The proposed trial design is a three arm randomized Phase II trial in combination with standard chemotherapy in the first line metastatic setting. Each arm would enroll approximately 60 patients and the trial would be initiated in sites throughout the U.S., Canada and Europe.

We are consulting with external bladder cancer experts and anticipate the final protocols to be completed in early 2011. The planned Phase II trial augments the ongoing OGX-427 development program, including a Phase II trial in metastatic prostate cancer and a Phase I in superficial bladder cancer.

Recall that in the third quarter we initiated a randomized investigator sponsored Phase II trial evaluating OGX-427 as monotherapy in men with metastatic prostate cancer. This trial will enroll up to 72 patients who have minimally symptomatic or asymptomatic advanced prostate cancer and who have not yet received chemotherapy. The trial is designed to determine the potential benefit of OGX-427 on disease progression and will also measure the effect of OGX-427 on prostate specific antigen, or PSA, time to progression, circulating tumor cells and other relevant secondary endpoints.

Also, currently underway is a Phase I clinical trial evaluating OGX-427 infusion into the bladder prior to surgical removal of part or all of the bladder. Phase I data presented at ASCO this year supports the rationale for further development of OGX-427. It has been demonstrated that OGX-427 is safe and well tolerated, both as a single agent and in combination with docetaxel chemotherapy. In addition, treatment with OGX-427 as monotherapy resulted in a reduction of circulating tumor cells and tumor specific markers, such as PSA in prostate cancer and CA125 in ovarian cancer.

We are excited about the recent progress and potential opportunity of OGX-427 and we look forward to continuing our discussions with oncology experts and potential pharmaceutical partners.

In conclusion, over the course of the last 12 months we've delivered on our corporate objectives and created a solid foundation for success moving forward. We have entered into a partnership agreement to fund the $170 million Custirsen Development Plan in two key cancer indications, while retaining royalty revenues, which we believe approach economic senior profit sharing arrangements.

We also have now have sufficient tax runway to see these trials through to completion and implement an expanded Phase II development program for OGX-427. These accomplishments align with our mission to bring novel cancer therapies to patients who so desperately need them.

At this time Cameron will provide an overview of the third quarter financial results. Cameron?

Thank you, Scott. We finished the third quarter of 2010 with $42.1 million in cash and investment securities. Together with the estimated $46.7 million in net proceeds from the public offering completed in October we anticipate ending the year with cash, investment securities and amounts to receivable of between $83 million and $85 million.

This is the strongest balance sheet we have had in our history. We estimate that these funds will last us four years and enable us to complete the three Phase III trials for custirsen and two randomized trials for OGX-427 that Scott previously discussed.

In September 2010 we revised our sublease income assumptions used to estimate the excess lease liability associated with our office space located in Bothell, Washington. This change in estimate resulted in increase of the excess lease liability and a $4 million restructuring expense recorded in the third quarter. It is important to note that this is a non-cash item and has no impact on the Company's cash flow projections going forward.

Collaboration revenues were $4.9 million for the third quarter and $11.3 million for the nine months ended September 30th, 2010. Of the revenues recognized in the third quarter $3.5 million is included on the Company's balance sheet as amounts receivable at quarter end, as these amounts are reimbursable from Teva on a cash basis.

At September 30th, 2010 our deferred collaboration revenue balance was $23 million, which represents the remaining amount we are obligated to contribute to the Custirsen Development Plan under agreement with Teva. As previously discussed, when we contribute to the Custirsen Development Plan the deferred collaboration revenue balance will decrease and be recognized as revenue. We expect to recognize the remaining deferred collaboration revenue over the expected performance period of our deliverables under this agreement. We currently expect this profitability period to end in the fourth quarter of 2012.

Research and development expenses for the three months ended September 30th, 2010 were $6.7 million compared to $1.5 million in the third quarter of 2009. Research and development expenses for the nine months ended September 30th, 2010 were $16.2 million compared to $6.3 million in the corresponding period 2009. The increased research and development costs incurred in 2010 as compared to 2009 were primarily due to higher manufacturing costs and clinical trial costs associated with the custirsen Phase III clinical trials.

General and administrative expenses for the three months ended September 30th, 2010 were $1.1 million compared to $900,000 in the third quarter of 2009. General and administrative expenses for the nine months ended September 30th, 2010 were $3.9 million compared to $2.7 million in the corresponding period of 2009. The increases in 2010 were mainly due to higher employee expenses, increased severance charges, professional fees for legal and accounting services, employee recruitment costs and stock based compensation expense.

The net loss for the third quarter increased from $2.4 million in 2009 to $6.9 million in 2010 predominantly due to lease related non-cash restructuring charge previously discussed. Despite the $4 million restructuring charge we incurred in the third quarter the $9.8 million net loss for the nine months ended September 30th, 2010 was relatively consistent with the $9.4 million loss we incurred in the first nine months of 2009.

That completes our financial overview. And with that, I would now like to open up the line for questions. Operator?

(Operator Instructions). Our first question is from Simos Simeonidis of Rodman & Renshaw.

Thanks for taking the question and congrats on the quarter. Scott, I know you haven't given guidance in the past but I was wondering if you may be able to give us any updates on the enrollment for Saturn and Synergy? I know it's early but can you talk about how the enrolments are going? The reason I am asking is there's been talk that the new other therapies that are available, you might be slowing down the process. Thanks.

Okay thanks for the questions, Simos, appreciate that. So, as we've indicated in the past, we tend not to give guidance on accrual rates or for a number of different reasons but we can certainly address I guess the second part or the question behind the question. As you know, there's been a number of changes in the marketplace with respect to introduction of PROVENGE in the pre chemo space, [Geptan] in the post docetaxel arena and [Reconomy] with [Averaterim] and, as we've talked about in the past, the impact on those on our trials, as anticipated, has not been material, mainly because our trials are interaction in combination with chemotherapy these other agents that are being improved or are starting to embark on new pathways are really ahead and behind where we are and there's not a direct impact on the accrual rate. We're just not seeing that at this point, so I'm not sure where those particular comments are from but we're not seeing it.

So there hasn't been any impact so the time lines are not shifting at all from what there were.

No so far we haven't modified anything that we've said as far as our guidelines on time lines for these trials at this point.

Okay perfect and in terms of financial question for you or Cam, you said with about $85 million in cash how should we start thinking about spending, for example, for next year? You also mentioned you gave us a kind of guidance that we do have cash for another four years approximately so is it going to be more lumpy in the first year, given that you're doing three Phase IIIs or should we see an average of spending in the $20 million per year for the next four years?

Yes I can take that one, Simos. Yes I think this year has been pretty indicative of what we would expect our quarterly charges to be going forward. We've seen in the first three quarters our cash used kind of ranged in the $3 million to $7 million driven more by the manufacturing, the time to manufacturing charges, so I would continue to expect to see our cash utilization be quite lumpy in the quarterly, quarter-by-quarter basis. We're not giving 2011 guidance at this stage, as we're kind of going through the 2011 budgeting process currently.

Great and final question and I'll jump back in the queue, this one for you too, Cam, shares outstanding at the end of Q3 and what are the fully diluted shares after the raise?

Okay, including the options we have outstanding and the warrants, our fully diluted number is 11.8 million.

After the raise.

After the raise.

And then at the end of Q3.

Yes so it was 6.5 million pre raise and we have 9.6 million outstanding as of -- shares outstanding as of the date of our filing.

Great thanks and congrats again on all the progress.

Steven Willey, Stifel Nicolaus.

Thanks and congratulations as well. Just a quick question regarding custirsen and lung cancer, it sounds like you're sounding a little bit maybe more confident as to the timing and initiation of that in 2011 and just wondering if that's a trial design that you and Teva have kind of done any more work on with respect to what a front line trial might look like and whether or not you're going to be looking at patient subsets?

Yes we in fact around the same time we were doing the financing we were -- the team was actually in Israel going through a fair bit of the development activities in respect to non-small cell lung cancer trial. There's still a few things that we're working out as far as refinement so it's probably a little bit early for us to promote into the public domain with specifics on the trial but there has been certainly some activity with respect to the development of the specifics on that protocol under way now.

Hopefully we'll be able to get back to you on subsequent calls and give you some further detail on all the things you were talking about. I don't think we're changing tune with respect to endpoint being survival, as we've talked about in the past but we'll get more precise when we start talking about the study population, the end for the trial and all the other elements that you'd be interested in in respect to that but we'll have to take that up on a subsequent call.

So maybe just an indirect question and I don't know if Cindy can chime in but just given the mechanism of action here, would you expect to see much of a difference with respect to the chemo double that you selected as a backbone or are you kind of just more of the thinking that as long as you have just a platinum agent in there it's not really going to matter with respect to which agents you mix and match with?

Yes I'll take the first part of that and give it to Cindy on the clinical piece. As you may recall, there's a lot of data in supporting custirsen in combination with a number of chemotherapeutic agents and this is not intended to be a complete list but you basically cover the taxanes, platinums in both cysts and carbo methotrexate, [mytexantrum], 5FU. There's a fairly extensive list and I think it's fair to say that in the preclinical studies that we've run there isn't a particular chemotherapy that we preferentially augment versus others.

I think the key is where we see a particular chemotherapeutic agent having benefited in the tumor type that tends to be the better decision I guess if we have it in combination strategies. And, as I think you're alluding to in the non-small cell lung space you've got your choice of a number of different doublet strategies that exist, so trying to match that to marketplaces and trends and so on is the present activity as well. Cindy, did you want to add anything on to that?

No but I think we're in agreement as far as it's a platinum regimen, whether that platinum is combined with [Gem] or a taxane we feel very comfortable as far as the OGX-71 benefit of those regimens.

And then just a quick housekeeping question financially, the restructuring charges, is that just a 3Q specific charge or is there any more to carry over into 4Q?

No that's a 3Q specific charge and we don't anticipate any additional charges going forward at this point in time.

Philippa Flint, Bloom Burton.

Just a couple of questions, the -- can you be any more specific on when you expect the non-small cell lung cancer trial to start? Do you think it will be the first half of the year?

At this point we're not giving more guidance. You can probably look forward to that in subsequent telecons as well. I think until we've had the final wrap ups with Teva and so on and then going through the budgeting process I think we'll wait until we get into more of that detail in subsequent calls.

Moving on to the metastatic bladder cancer trial, you mentioned it was three arm trial. Can you comment on what those three arms would be?

Yes we'll give you some high level on that. It's basically looking at obviously a control arm so we have a comparator and then we'd be looking at two different doses of OGX-427. If you go back to the Phase I trial that we conducted in solid tumors, there was activity that was across a pretty broad array of different dosing schedules that we had evaluated so wanting to put in a basically two different doses so that we can look at, of course the activity that you see, but also look at the safety profile to see if we get any distinction from the dosing schedules from the Phase II that would guide our Phase III thinking.

And what would you look at as an endpoint?

That one is well I guess we'll give you some more detail as we go forward in subsequent calls. There's going to be a number of different endpoints that we'll be looking at including elements of progression and the usual things you'd be looking for for survival and response rate kind of information. The reason we don't want to be too specific on it, although we do have some very solid plans on this, we are presently going out to the bladder experts and want to assess feasibility and so on from that perspective before we communicate to the Street on the specifics.

And in terms of manufacturing of 011 for the Phase III program, can you comment on whether you've finished all the manufacturing of your clinical trial supplies or if you still need to manufacture for the non-small cell or any of the prostate cancer?

No the manufacturing is it continues through the development plan. We wouldn't have all of it on hand at this point but it continues to be manufactured as we go forward.

And then finally, in your press release you said that you have four years of cash, which we believe is the decision to complete all three trials, including the non-small cell lung cancer. But those are not costing you anything are they?

No this is -- that's a great question. As we talked about in the past, our contribution to the program in totality is the $30 million that we've talked about in previous discussions. The reason the runway becomes important even though we're not contributing on a cash basis and we're not worried about the liability, from a viability of the organization perspective you want to make sure that the Company exists at the time that you have the data. It's not so much a liability issue.

Okay great. Thank you very much.

(Operator Instructions). Mark Monane, Needham. Please check to see if your line is muted. Okay, our next question is from Steven Willey of Stifel Nicolaus.

Yes just a quick follow-up, in thinking about some of the indications you could have perceived with the 427 there's obviously some large ones in there with respect to market size and I guess the footprint that would be required from an infrastructure perspective. Is bladder a decision that's based on biology but also based on potential go it alone or just wondering just if you could maybe just give a little bit more color on the commercial aspects of bladder in addition to the biology that you stated?

Sure yes let's have that discussion. So bladder is the fifth most common cancer diagnosed in the U.S. so it is in the top group of cancer indications but, as I think you were just alluding to, there are others that I had mentioned like lung, breast and colorectal that clearly are in the top three. The rationale for selecting bladder over some of those is if you were compare sort of the landscape of those opportunities what you'll find is some of the bigger tumor types the large companies are involved with and so if you look at your ability to accrue those trials and sort of the feasibility of execution and time to get those trials done, they become more difficult to do because of the competitive landscape for accrual for patients.

That's not in and of itself a scare off for us, as you know from other areas that we're pursuing, but what we're wanting to do is just make sure that the feasibility is there from an execution perspective. And certainly it is driven by the biology, as we alluded to in the prepared statements. There is preclinical data set for bladder, both from inter tumeral from systemic and from direct infusion into the bladder. There's a fair bit of data supporting that particular indication.

Okay and then quickly just on some of the other pipeline things that you have on hold, is there a chance that any of those get moving again at all or is it still just going to be kind of a 427 and 011 story?

Well, at this point the use of capital would be directed to the assets that we've talked about. There is potential that those other assets could come into play and, as you know, we're very excited about those as well. But I think our priority from a cash utilization perspective is to be sure that we can get through the Phase III trials with the available capital on the lead program with custirsen and complete the randomized Phase IIs, the two of them that we have for the second asset.

As we get through and get more accrual experience in these various trials and we know with more precision on how those are going to complete out, then we could make a more informed decision of whether to advance the other assets with the available capital but I don't think we would want to be pursuing those at the expense of not achieving the prioritization that we have for getting answers on the Phase IIIs for the lead and the Phase IIs for the second drug.

And, just given that, have you thrown around the idea of potentially maybe trying to monetize any of those through a [B.D.] or a licensing transaction?

Yes we are actively out with SN2310, as we've talked about in previous conference calls. That's an asset that I think we have talked about previously that it doesn't fit sort of the treatment resistant paradigm that we have as our core mission. It's more a formulation development plan and, while that's interesting, it doesn't really sort of fit our key mission so it's on the up licensing list and we are actively out to potential partners on that presently.

With respect to the other two preclinical, it's always a tough decision. We feel very fondly of those assets and we wouldn't want to basically just get rid of them from a development perspective if we had our options, but more creative solutions and jointly developing with other parties to share costing and so on could certainly make some sense. But we'll come back again with some better clarity on that as the next couple of conference calls come together.

Thanks for the additional color.

Mark Monane, Needham.

Speaking of expected, when you combine any drug with [Taxitere] one expects chemotherapy related side effects of the Taxitere. In some of your earlier trials you've shown that patients tolerate Taxitere longer so the question I have for you is are you looking for that kind of analysis as well in the Phase III trial? And then secondly, does the protocol allow potentially for the continuation of the use of one drug or the -- of one drug going forward, of your drug going forward if the Taxitere is discontinued?

So maybe just a clarification on the first part of your question, are you asking whether or not we're improving the safety profile of Taxitere?

Well, I know in the Phase II studies we saw that patients that were on I believe, and correct me if I'm wrong, that patients that were on 011 were able to tolerate chemotherapy longer potentially had more doses. I guess are you looking for that as well in the Phase III trial and then secondly, is there an opportunity to continue the 011 or if the Taxitere is discontinued?

Right okay so with respect to the first part of the question, the additional cycles of combined therapy, that being custirsen plus docetaxel, was more related to a lack of progression than it was sort of an improved safety or tolerability profile, so we would certainly be looking for a repeat of that kind of activity in the Phase III trials but I think that would be characterized more from a lack of progression than it would be an improvement in the safety profile, if you will.

The second part with respect to maintaining custirsen dosing while patients progress and presumably go off docetaxel in favor of another agent, no the protocol is when those patients progress they would come off. Cindy, did you want to touch on the pain palliation trial because that's a little bit different interpretation.

Yes and I can just add a little bit to that, Mark. As far as the safety profile for both of these Phase III studies we'll be looking at overall safety in both arms and assessing when the adverse events are occurring from cycle to cycle to cycle so we would be able to look at between arm comparisons, not only on the overall safety profile but as far as the adverse events as the cycles go on. So I think that helps address your first question.

And that is in both of the Phase III trials. Now obviously one of the Phase III trials the pain palliation is blinded so obviously investigators then are reporting or actually patients are reporting the adverse events per cycle in a blinded manner so we will have both of those Phase III studies to be able to better clearly define the safety profile as you go on with longer docetaxel plus OGX-011 treatment. In both studies though, once you have progression you stop both drugs, both docetaxel and OGX-011 or the docetaxel and placebo in the latter trial because it's blinded.

And how about if you observe any side effects that end up to be causing the patient to withdraw from the trial?

Well, that's always documented and so those, for example, that's where fatigue because docetaxel causes fatigue. That's where in controlled studies like this it's always helpful when you can do the between arm comparisons and it's always a chicken and the egg if in the first line study you have patients in the treatment arm that go out 10 cycles or more and they stop for fatigue that will be different in the control arm if they're stopping at six or seven or eight cycles for fatigue.

Fair enough. Thanks for the added information.

(Operator Instructions). There are no further questions in the queue at this time.

Okay well, with that, we will conclude today's conference call. Thank you very much for participating and we certainly look forward to conference calls in the future. Thank you.

Ladies and gentlemen, this concludes the program. You may now disconnect. Good day.