BioCryst Pharmaceuticals Inc (BCRX) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the BioCryst Pharmaceuticals, Inc.

Fourth Quarter 2017 Earnings Conference Call.

(Operator Instructions) As a reminder, this call is being recorded.

I would now like to turn the conference over to our host for today, Tom Staab, Chief Financial Officer.

You may begin.

Thank you, Sonia.

Good morning, and welcome to BioCryst's Fourth Quarter and Full Year 2017 Corporate Update and Financial Results Conference Call.

Today's press release and accompanying slides are available on our website.

Participating on the call with me today are Jon Stonehouse, Chief Executive Officer; and Dr. Bill Sheridan, Chief Medical Officer.

Following our formal remarks, we will answer your questions.

Before we begin, I'd like to direct your attention to Slide 2, which discusses our use of forward-looking statements and potential risk factors regarding an investment in BioCryst.

As detailed on the slide, today's conference call will contain forward-looking statements, including those statements regarding future results, unaudited and forward-looking financial information as well as the company's future performance and/or achievements.

These statements are subject to known and unknown risks and uncertainties, which may cause our actual results, performance or achievements to be materially different from any future results or performance expressed or implied in this presentation.

You should not place undue reliance on these forward-looking statements.

For additional information, including a detailed discussion of our risk factors, please refer to the company's documents filed with the Securities and Exchange Commission, which can be accessed our website.

In addition, if you're looking for the S-4 joint proxy statement, it is under Nautilus Holdco, Inc., on the SEC website.

Now I'd like to turn the call over to Jon.

Thanks, Tom, and good morning and thanks to all of you for joining us today.

Let me begin with a few highlights from our development pipeline, and then I will turn the call over to our -- back to Tom to review our fourth quarter financials.

Following Tom's remarks, I will discuss some additional details about our previously announced merger with Idera, and our CMO, Bill Sheridan, will discuss why we are so excited about Idera's pipeline, especially IMO-2125 as well as the opportunities for synergy created by combining our discovery engine with Idera's.

2017 was a year of significant progress for BioCryst, and we have gotten off to a strong start in 2018.

We are focused on moving our programs forward and hitting our time lines.

We also announced our plans to merge with Idera, which will accelerate the strategic initiatives of both organizations and will immediately form a substantial and differentiated biotech company, one that is serving patients in the rare-disease community and is well positioned to generate enhanced value for shareholders.

APeX-1 data represented a significant milestone for BioCryst, and since then we continue to move full steam ahead on BCX7353.

We are screening patients and remain on track to initiate our Phase III trial, APeX-2, this quarter, with the goal to report top line results in the first half of 2019.

We also are screening patients and expect to initiate our long-term safety study of 7353, APeX-S, this quarter.

We continue to enroll patients into the ZENITH-1 trial, which will study an oral liquid formulation of 7353 for alleviating acute HAE attacks, potentially providing better solutions for the entire HAE treatment spectrum.

Enrollment has exceeded our expectations since the fall, as we have fully enrolled the 750-mg cohort with 36 patients and are currently enrolling patients in the 500-mg cohort.

On average, from the patients enrolled thus far, it takes 4 months for patients to complete having 3 treated attacks, but there is a wide variation from patient to patient, and this affects the time to completing a cohort and completing the trial.

We expect to report out data on efficacy, safety and tolerability from the 750-mg cohort in the second half of this year.

We are also extremely excited about our new program to treat fibrodysplasia ossificans progressiva, or FOP.

FOP is a devastating disease that results in the loss of function, deformities, and as it progresses, to severe disabilities and early death.

As an ultra-rare disease with no currently approved treatments available, FOP is a logical and strategic fit for BioCryst.

The program, which came out of our own discovery platform, is currently in preclinical development, and we expect to initiate Phase I clinical trials in the first half of 2019.

With that update, now let me turn it over to Tom.

Thank you, Jon.

I am pleased to report our fourth quarter financial results, and as Jon said, a very successful beginning to fiscal 2018.

We began 2018 with $159 million in cash and investments after 2 successful capital raises in 2017.

This balance provides us cash runway sufficient to achieve APeX-2 results, which are projected to be available by mid-2019.

In addition, this January, we announced completion of a definitive merger agreement with Idera Pharmaceuticals, a combination that creates a larger and stronger orphan-disease-focused company with significant expertise and substantial value.

Our fourth quarter 2017 results are presented on Slide 12.

Starting with revenue, you see that total revenues for the fourth quarter of 2017 decreased to $3.9 million from $9 million in the fourth quarter of 2016.

The decrease resulted from lower collaborative revenue in 2017, accompanied by a lack of product sales associated with the sale of peramivir inventory to our partners.

These inventory sales occurred in the fourth quarter of 2016 and totaled $2.3 million, but did not recur in 2017.

Fourth quarter 2017 R&D expenses increased to $16.9 million from $12.2 million in the fourth quarter of 2016.

This increase was primarily due to additions in our R&D employee ranks in preparation of our Phase III APeX-2 trial and our APeX-S long-term safety trial as we enter the last stage of development in our prophy program.

In addition, we incurred higher spending on the company's HAE portfolio of compounds, including the ongoing proof-of-concept ZENITH-1 trial.

General and administrative expenses were $4.7 million in the fourth quarter of 2017 and increased from $2.6 million in the fourth quarter of 2016.

The increase in G&A expense is largely due to an increase in business development and merger-related costs.

Moving below the operating line.

We incurred $2.2 million of interest expense in the fourth quarter of 2017, compared to $2.1 million in 2016.

In addition, we recognized $71,000 mark-to-market gain on the company's foreign currency hedge, as compared to a $5.7-million mark-to-market gain in the fourth quarter of 2016.

These gains result from periodic changes in the U.S. dollar-Japanese yen exchange rate and the related mark-to-market valuation of our underlying hedge arrangement.

Our net loss for the fourth quarter of 2017 was $19.5 million, or $0.20 per share, compared to a net loss of $4.5 million, or $0.06 per share, for the fourth quarter of 2016.

On Slide 13, I'd like to discuss our cash balance and cash usage.

We ended the fourth quarter with cash and investments of $159 million, up $94 million from the $65 million at the end of 2016.

Our operating cash utilization for the year was $42 million and was in the middle of our 2017 guidance range of $30 million to $50 million.

This cash burn excludes the $134 million of net proceeds we brought in in 2017 from 2 public offerings of stock.

Furthermore, as I mentioned earlier, this balance provides us cash runway to see the data readout of both ZENITH-1 and APeX-2 results.

In regard to financial guidance for 2018 on a standalone basis, we are forecasting operating cash usage to be in the $67 million to $90 million range.

In addition, we expect our 2018 operating expenses to be in the $85 million to $110 million range.

As a reminder, equity-based compensation expense is excluded from our operating expense guidance.

Both guidance ranges are significantly higher than those of 2017 as we progress 7353 into the final stage of development and advance our preclinical programs to IND filings.

Now I'd like to turn the call back over to Jon.

Thanks, Tom.

Moving on to the announced merger with Idera.

This morning, we filed our preliminary joint proxy statement prospectus in connection with the merger as well as an updated investor presentation outlining the benefits of the transaction.

I encourage you all to read the proxy statement and review our presentation.

After carefully evaluating a range of strategies to enhance shareholder value over roughly a 2-year period, which is detailed in the background section of the proxy statement, our board determined the combination with Idera was compelling from both a strategic and financial perspective.

We have a highly experienced board of directors who are well respected for both their operational and strategic experience in the biopharma sector, and the board, with the assistance of BioCryst management and independent financial and legal advisors, determined a merger with Idera makes strong strategic sense and enhances shareholder value.

Combining with Idera will position us to accelerate our strategic initiatives, expand disease targets and deliver life-changing therapies to more patients suffering from rare diseases.

The merger provides compelling upside opportunity to BioCryst shareholders by leveraging both companies' diverse late-stage product pipelines, advanced discovery platforms and complementary expertise in rare diseases.

Together, the combined company will have a robust late-stage pipeline with 2 highly attractive Phase III assets and 2 promising Phase II assets.

The merger is also synergistic in terms of cost as well as the enhanced development opportunities resulting from the combination of our discovery engines.

This deal creates meaningful opportunities for operational cost savings, multiple near-term sources of nondilutive capital and new opportunities to expand the portfolio's market potential and to maximize shareholder value creation.

Now I'd like to turn the call over to our CMO, Bill Sheridan.

He will cover 2 key topics: First, what we learned during the evaluation of Idera, and why we believe IMO-2125 has a firm scientific foundation and impressive clinical data; and second, the potential opportunities that we believe will arise from combining our structure-guided small-molecule discovery platform with Idera's nucleic acid and oligonucleotide chemistry discovery platform.

After Bill finishes, I will come back to talk further about operational cost synergies, capital implications and maximizing shareholder value.

With that, I'll turn it over to Bill.

Thanks, Jon.

I'm excited by the opportunity that combining our companies will bring for patients with deadly and rare diseases.

When I practiced medicine as a hematologist and oncologist, my area of research was bone marrow transplantation.

In those days about 30 years ago, the graft-versus-leukemia effect was the only immuno-oncology treatment that existed, and in fact, even the term "immuno-oncology" was not yet in use.

At that time, it was hard to see how the ability of the immune system to treat cancer could be made more broadly applicable, and I was then in the camp of immuno-oncology skeptics.

With that background to assess the Idera TLR agonist project, we thoroughly reviewed their Phase I/II trial data of intratumoral IMO-2125 in combination with a systemic checkpoint inhibitor in patients with metastatic melanoma who had failed prior checkpoint inhibitor treatment.

We reached out to independent experts in melanoma treatment and translational medicine to help us with this review.

What we found was an impressive response rate, 5 of 10, or 50%, for ipilimumab plus 2125 at its recommended Phase II dose of 8 mg.

These responses included visceral lesions and, very importantly, abscopal effects on distant lesions that were not injected with 2125.

One subject has had a complete response that has persisted for over 2 years.

One other subject who failed prior ipilimumab treatment also achieved a response on 2125 plus ipi.

Even if we look at the most conservative view and included all the doses assessed in the Phase I/II trial, we still saw a clinically meaningful overall response rate of 5 of 16, or 29%, of evaluable subjects in the ipi plus 2125 arm, which is more than double the 13% reported for ipilimumab alone.

A key part of our assessment was the evaluation of the translational medicine evidence that intratumoral injection of 2125 was working as advertised as an agonist of TLR9.

The findings were comprehensive and compelling, and for example, included clinical tumor biopsy evidence of upregulation of innate immunity cytokine pathways and gene signatures, (inaudible) cell activation and tumor infiltration, and specific cytotoxic T-cell activation and tumor infiltration, including in distant lesions.

Similar evidence had already been demonstrated in several animal tumor model experiments.

The evidence strongly supported the hypothesis that intratumoral injection of this TLR agonist could help turn immunologically cold tumors hot and potentially expand the utility of checkpoint inhibitors in refractory patient populations.

Importantly, this includes PD-1-refractory melanoma patients, the population of the primary efficacy in Idera's near-term Phase III trial of 2125 in combination with ipilimumab.

We know from the approval trials for checkpoint inhibitors, conducted across a variety of solid tumors other than melanoma, that overall response rates are generally much lower than one would like to see.

An attractive aspect of the TLR agonist approach is its potential to be broadly applicable across many tumor types, as it works on the body's innate immune system independently of the type of cancer.

Combination treatment with 2125 in these diseases is therefore attractive to pursue.

Right now, Idera has evidence that when 2125 is used as monotherapy in nonmelanoma solid tumors, a clinical benefit can be seen, with stable disease in several subjects who have visceral metastases.

The ability to inject visceral lesions with 2125 is very important in the nonmelanoma setting especially, and sets the stage for future trials of 2125 in combination with checkpoint inhibitors across various cancers.

All combined, our review gave us confidence that what we were seeing could be very meaningful to patients and physicians.

In addition, the breadth of potential combinations for 2125 with immunotherapy and larger patient populations could be of substantial interest in major players in the immuno-oncology space who do not have TLR9 agonists in their portfolio today.

For the future, the combination of BioCryst's structural biology-based, small-molecule, drug-discovery capability with Idera's oligonucleotide capability strengthens and diversifies our R&D pipeline.

Approaches that could provide testable hypotheses would be, for example, small-molecule oligonucleotide conjugates targeted to specific tissue types, or combination therapeutics with small molecules and oligos exploiting 2 different mechanisms of action.

Our stronger portfolio of discovery skills and development projects will help us to achieve our top priority for patients, which is to deliver life-saving therapies to more patients suffering from rare and orphan diseases and help them have a better quality of life.

I'll now turn it back to Jon.

Thanks, Bill.

Let me provide a bit more detail on the financial side.

We expect to realize approximately $20 million in cash synergies in year 2 and a total of $30 million in year 3 of annual pretaxed cost synergies after closing.

This will largely come from consolidating facilities and other expense savings, providing the combined company with increased financial strength and flexibility.

The company will be well capitalized, with a net pro forma December 31, 2017, cash balance of approximately $243 million to fund internal clinical development, discovery research and commercial launch preparation efforts.

The combined company will have a cash runway into the third quarter of 2019, and we could extend it longer by renegotiating our debt, cash from in-the-money warrants and multiple opportunities for nondilutive capital through government stockpiling and new partnering arrangements.

For all these reasons we outlined when we announced the transaction and reiterated today, I am confident this merger will position the combined company to serve more patients by expanding opportunities for successful product development and commercialization and create sustainable shareholder value well beyond what we could achieve as a standalone company.

In summary, the combination of BioCryst and Idera creates a unique player in rare diseases with scale and a strengthened competitive position; provides more opportunities for success through a diversified late-stage pipeline as well as a variety of early-stage programs and supporting assets; creates enhanced development opportunities through the synergy of combining 2 unique discovery engines; brings together best-in-class people with extensive clinical and commercial know-how in rare diseases; and increases our financial strength and flexibility through significant cost synergies and a stronger cash position.

This is truly an opportunity where the whole has the potential to be much greater than the sum of the parts, and we believe the benefits of this combination for shareholders of both companies are compelling.

With that, I'll now turn the call back over to Sonia to take your questions.

(Operator Instructions) Our first question comes from Charles Duncan of Piper Jaffray.

I had a couple of operational questions, and that was primarily along the lines of the APeX-2 trial.

And I'm kind of wondering, could you characterize how the site initiation is going?

And perhaps the screening of patients in terms of their kind of background therapy or their background attack rates?

And whether or not there's been decent investigator interest in the trial.

Charles, it's Bill here.

Thanks for the question.

I'm really pleased with the study startup progress that we're making in the U.S. right now.

Sites are opening, patients are on screening.

They do have to have some attacks in the screening period before randomization occurs, and that's happening, so everything's going really well, I would say.

Yes, and I would add, the background therapy and background treatments, it's all over the board.

In the U.S., there's a lot of people that are on prophylactic therapy.

There are some people that are on on-demand therapy, and we're seeing both coming into the trial.

And I would add to Bill's comments, the enthusiasm for this trial is the best we've seen in all the trials that we've done thus far.

I mean, we normally would take physicians that would say initially that they had 4 patients and we'd cut it in half because we didn't think they could get this many.

Now we get patients that say 2 initially, and then they come back and say, no, I have 4. So the enthusiasm level is very high.

Given the high enthusiasm for the trial, I'm sure that you have considered, but could you help us understand how you've considered that enthusiasm in terms of considering the noise in the trial, or the noise that could come from the trial, due to any investigator or patient biases with regard to expectations?

Yes, interesting question.

Yes, our experience with all the studies we've done to date is that blinding is -- works as intended.

And I don't pay any attention to blogs or anything.

I think that the progress of the trial will be standard.

We'll run it according to the protocol, we'll do the analyses stipulated under the protocol.

And I think the enthusiasm comes from people's desire to have an oral treatment to prevent their attacks; that's clear.

At every meeting we've gone to, every patient conference, every publication from independent researchers on patient preferences, the FDA open forum, they're all aligned around much better route of administration to prevent attacks.

So that's what's driving this, and I think that -- I'm very hopeful that patients who come onto the study will be highly motivated to stay through their 48 weeks of treatment, 24 weeks of blinded treatment.

They might be getting a placebo, but then they know they're going to get open -- they know they're going to get active drug in the second 24 weeks.

So I think it's a very attractive study, and looking forward to making progress per our plan.

Yes.

And if your question's around, could we have a strong placebo effect, it's a 24-week study.

I think if it was a shorter study, that might be more problematic with this enthusiasm and potential bias.

But when you have a 24-week study and you have an entry criteria of 1 attack per month, the likelihood that you're going to see attacks in the treatment period's pretty high.

Really high.

Yes, make sense.

I'm a little naive to these things.

So last question may be more of a perspective-builder, and that is, on lana's priority review, I'm wondering what your thoughts on that are, and in terms of the regulatory environment in general and unmet need for HAE.

Sure.

No, well, I think that's a good thing that new treatments for HAE are getting treated from the perspective of the significant medical need that exists in the disease.

So yes.

Yes, that's a good sign.

Especially given that that's the same division -- especially given that's the same division we're going through.

Yes, sorry to interrupt.

I'm assuming it gets approved by late summer.

I guess in terms of APeX-2 enrollment and site -- obviously, site initiation, how do you feel about getting some patients in there and perhaps even nearing completed screening by, or before the time lana comes on board?

So when we were planning the study, we factored in the likely approval of the kallikrein antibody in the time frame that made the most sense, and we'll be planning to open the remaining sites in the United States and then start opening sites in Europe.

So I think we're well prepared, yes.

Yes, the site initiation is going very, very fast, so -- in the U.S., so that's good.

Our next question comes from Brian Abrahams of RBC Capital Markets.

This is Greg on for Brian.

I'm just wondering if we could just -- if you could comment, perhaps, on the comprehensiveness of the merger process.

Just curious that essentially -- certainly with the perceived value of BioCryst and 7353, clearly, per the proxy that was released today, there appeared to be a great deal of interest from multiple parties before the APeX-1 data.

But I'm just curious how satisfied you are around the idea that a review was fully realized post the data and that any potential parties or partners were fully engaged to help realize that value.

Sure, Greg.

So let me be really clear: At BioCryst, the board and management has been looking at strategic options almost the entire time I've been at BioCryst.

It'll be 11 years.

And in the last 2 years, we'd map out the detail in the background section of the proxy statement.

You can imagine that there'd be more interest as we get closer to data and as we have data, and you can read the proxy and you can see that.

But the key was, what strategic option was compelling to the board of directors to sign off on a deal?

And this Idera one was that, right?

It's a late-stage pipeline, diversified late-stage pipeline.

It's got 2 complementary discovery engines, talent that's complementary and financial capability and flexibility to create value way greater than what we could do as a standalone company.

And so that's what drove us to pull the trigger with Idera.

Great.

And then just looking forward, just curious if you could provide just some color just around some of your assumptions on 2125.

It sounds like the new co will have a predilection for out-licensing 2125 following the merger, so perhaps you could provide, if possible, additional detail on what your assumptions are per the potential terms per monetization of that asset that, say, shaped your evaluation assumption for Idera, the company.

Sure.

So Bill described why the collective set of data, the clinical data and the translational data, led us to believe that there's something unique here that turns cold tumors hot and could be really attractive, not only in melanoma, refractory melanoma, but in other tumor types as well.

Vin has said this multiple times, that a company the size of Idera, and even the -- a company the size of the new co, doesn't have the financial wherewithal to be able to do large umbrella studies across multiple tumor types to take full advantage of the potential of 2125.

And so Idera, and again, you'll see this in the background section of the proxy, has been in conversations since ESMO and SITC with potential partners, and we'll evaluate whether or not those deals take place.

If they do, that's a source of capital that could be really meaningful when you look at some of the comparable deals out there.

It could be really meaningful to the new co.

And so but as Vin always says, there are deals that are done and deals that aren't done, and right now we don't have a deal that's done yet for partnering.

So the way we look at it is, it's refractory melanoma, and you'll see in the proxy statement 2 other tumor types that we used to come up with the valuation that we felt were manageable for new co.

Our next question comes from Liisa Bayko of JMP Securities.

Just to clarify: I'm not sure if you said this.

The guidance you gave, does that include the merger, or that's just standalone?

Hey, Liisa, it's Tom.

No, that's standalone BioCryst only.

Okay.

And then just with respect to ZENITH, what do you want to see in that study to say how we're going to move forward in the treatment of attacks?

Yes, Liisa.

Really, 2 categories of things we'd like to see coming out of ZENITH.

One is that the -- in the modern era where patients are treating themselves with injectable therapies to treat angioedema attacks at home, that you can actually run a study and get an answer.

So that's never been done before.

The studies that were the licensing studies, for CINRYZE and FIRAZYR, for example, had patients attend the clinic while they had an attack, and all of the observations were made in the clinic.

So it's a different era.

You can't do that anymore.

So we need to establish the -- that we can successfully get the patients to administer the experimental medicine at home, record all of the details that we need, and there's a signal that comes out of that.

The second thing we need to see is what type of evaluation gives the most information about the efficacy.

So we've got -- there are different ways to do that.

There are visual analog scales, there's time-to-relief type of endpoints and the like.

So we've got a range of endpoints in this proof-of-concept Phase II study that we'll look at, and that'll help us -- assuming we answer the first question in the positive, the answer to the efficacy will help us design the next step, which could possibly be a pivotal study, depending on the results of this one.

Obviously we're looking at safety.

There's no reason to believe that the drug won't be safe and well tolerated.

We've got lots of experience with that now.

So obviously we'll look at it, but the 2 main things are operational success and a treatment effect that is attractive and with an endpoint that we can carry forward into the next study.

Yes.

I think one thing that surprised Bill and I is the enthusiasm for this trial and how, since the fall, the ramp-up in enrollment just rocketed.

So I think we had expected that the pace would be a little bit slower and we'd have time to look at data, and all of a sudden we have 36 patients enrolled, randomized and enrolled, in the top dose.

So we made a decision to move to the next dose rather than wait to look at that data and then move.

So I think that's indicative of the desire to have an oral liquid as a treatment for acute attacks.

Our next question comes from Maury Raycroft of Jefferies.

This is [Michelle] on for Maury.

We were hoping you could elaborate more on the merger, and maybe specifically some of the ways you plan to direct your discovery platform in a synergistic way that could maybe result in competitive advantage for future programs.

I know you mentioned earlier some conjugates and combinations, but could you maybe elaborate on how -- kind of how you're thinking about moving some of those forward?

Sure.

So let me start, and then I'll pass it to Bill.

So I think first and foremost, both companies have multiple decades of experience kind of refining their expertise in their respective platforms.

So with us it's structure-based drug design, small-molecule drug development.

With Idera, it's nucleic acid and oligonucleotide chemistry.

And I think both companies have gotten really, really good at that.

And so just looking at those 2 things alone, not in combination, what it does is it allows you to open up a number of additional rare diseases that quite frankly BioCryst couldn't have pursued because we didn't have that capability.

And quite frankly, there are only a limited number of rare diseases where you can bring forward small molecules and create oral drugs in -- with enzyme inhibitors.

And so this just increases the universe of diseases that we can go after and bring forward unique therapies for patients suffering from rare disease.

And I'll let Bill talk about the synergies between the 2.

Yes.

So I would be very reluctant to limit the possibilities from combining 2 very creative research groups, and I think that what I hope to see, and what I fully expect to see, is that we'll open up fresh opportunities, and not just for disease targets but one our other platform couldn't go after.

For example, there might be tissue types that would not be addressable with an oligo platform for one reason or another.

But not just using the other platform, I think the combination of the 2, in a variety of interesting ways, could help to address targets that couldn't be approached with either platform alone.

And as an example of how we intend to proceed, we'll be looking again at the rare disease universe of information and thoroughly analyzing that to identify those types of targets and coming up again with a short list.

And obviously we've done that in the past, and that's where our FOP program came from, for example.

But we need to do that again with a fresh approach that takes full advantage of both the oligo and the small-molecule and the combination ideas so that we can identify attractive targets with high unmet need, addressable patient populations and commercially attractive possibilities.

This was -- and this was an important driver in doing the deal.

Obviously, having late-stage Phase III products, and 2 of them, that are highly attractive with meaningful data, Phase II data, behind them, was the biggest driver of our attractiveness to this deal.

But once those are on the market, you've got to refill the pipeline, and what Bill and I described is exactly how we'll continue to fill the pipeline and have unique products for patients who suffer from rare disease.

And so that builds sustainable value for shareholders.

Okay.

And just one other follow-up on that, when you think of the different risk profiles of the assets of Idera versus BioCryst, when you look through those Idera assets, what is BioCryst most interested in advancing internally, and how is having this singular organization going to help advance it?

Well, just by having more, you diversify risk, first off.

But that's not enough.

Obviously with IMO-2125, Bill articulated the setup data.

So you've got Phase II clinical data and you've got translational research data for proof of mechanism so we understand why we're seeing the effect that we're seeing.

From our perspective, that's important to leading us to conclude that the chances of being successful in a Phase III trial is high, and also the chances that it could be used in other tumor types is high.

And so that's how we look at that risk.

Of course, we think that with our Phase II data from APeX-1, that we also have a high probability of repeating the success that we saw in APeX-1 and APeX-2.

And so getting both of those drugs to market creates real value.

Beyond that, it's a bit more exploratory, right?

With ZENITH, this that Bill laid out, some of the differences in past acute therapy studies, so that adds some additional risk.

And with 8400 from Idera, there's less data to support that there's proof of mechanism, and so there's more risk on that program.

And that's how we assessed it.

And then the early stuff has always got more risk, right?

And so -- but when you combine it all together, I think the important thing is, it was really compelling that the combined organization would provide greater value for shareholders.

And our next question comes from Gena Wang of Barclays.

Maybe just one more question regarding the merger process.

Wondering, could you walk us through the expected time line for the next steps in order for this to complete?

Yes, I'll do my best on this one.

So we've filed with the SEC the S-4.

There'll be a review process with the SEC.

That could be a minimum of 30 days.

It can be longer if there's back and forth.

Once that's done, we will file the proxy, mail it out, set the record date for the shareholder meetings of the respective companies, and then the shareholder meetings will be held, the vote will be taken and the deal will be closed.

And so we're saying all of that will take place in the second quarter.

Hard to predict exactly when because of the SEC review.

Okay.

And then one question regarding the liquid formulation of the BCX7353.

Just wondering, could you remind us the PK/PD of the liquid formulation versus oral formulation?

And how would the -- sorry, like, maybe 1 follow-up question is, how would the ZENITH-1 data [read through] to the APeX-2?

I didn't quite catch the last part of your question.

How would what data?

The ZENITH-1 data.

Yes, the data, yes.

How would it link?

Okay.

So first of all, the general pharmacology of the drug is going to be exactly the same.

The advantage of giving it as a liquid is, you don't have to break down the gel of the capsule or dissolve powder contents of the capsule before it's dissolved, so you're getting the product already dissolved.

That might gain an additional 15 to 20 minutes, which might be helpful in the setting of an acute attack of angioedema.

It might also be a bit easier to swallow a liquid under those circumstances.

In any case, the -- we have studied the PK, of course, of the liquid formulation; it's exactly as we predicted.

And we studied it in a handful of HAE patients who were otherwise well at the time.

We got what we intended to see.

Just as a reminder, this is a drug, when you give it every day for prevention of attacks, because of its long half-life, it takes a while to get to steady state.

So the steady state exposure of, let's say, around about 250 mg a day, would be equivalent to the single-day exposure of the dose that we're starting off with in ZENITH.

So we know quite a lot about the PK of the drug.

We understand the PK profile of the liquid formulation.

An attractive aspect, in addition to the rapid increase in blood levels after ingestion, is the sustained long exposure you get with a single dose.

So I'm -- what I'm hoping to see is that we get very nice efficacy results out of ZENITH and there's no rebound, and patients don't have to take rescue medicine during the following 24 hours, for example.

In terms of linking the PK between -- or the results of ZENITH and APeX-1, I think it's hard to extrapolate the results of a prophylactic study to an acute study.

They're different settings.

Is it fair to look at the target threshold?

Yes, we've certainly done that in the thinking.

I think there's less research that goes to establishing a target threshold for treatment of acute attacks compared to, say, the analysis of the compact study, which is -- has been very important in the field.

But we've based it off that, and we deliberately overshot both thresholds in the doses we're studying in ZENITH, so we're giving it its best chance.

Our next question comes from Serge Belanger of Needham & Company.

A couple questions on 7353 and APeX-2.

It sounds like it's still on track to initiate this quarter.

Is the merger at all an influence on getting the study started?

And then a second question related to APeX-2 is: I think last -- during the last update you talked about a blinded interim analysis for pairing assumptions.

Is that something we could expect in the second half of this year, and is that something that you plan on making a public announcement on?

So I'll take the first part.

Bill can take the second.

So no, there's nothing that's interfering with the progress that we're making on APeX-2.

The team is completely focused.

Sites are getting up and initiated.

Patients are going through screening.

And we're on track, as I said in my prepared remarks, to hit our time line of dosing the first patient in this study in the first quarter.

So -- and we're working -- Bill and I are working with the teams to make sure that we hit our time lines, because that's just really critical to the new company.

And then Bill, you want to talk about the interim?

Yes.

So the -- we should set expectations appropriately low for what you'll learn about the interim analysis.

This is simply to look at the standard deviation in a blinded way and check that our pairing assumptions were fair.

If the pairing assumptions were fair, and no change to sample -- no increase in sample size is needed, then we won't do anything and we'll just complete the study.

So the likelihood is that nothing will -- that will be outcome, and we'll just complete the study as designed, and that'll be that.

So we're not going to be seeing any efficacy data whatsoever.

So just want to make sure that's clear.

It's a very common thing to do; it's a standard part of regulatory guidance and -- that regulators encourage sponsors to do that type of analysis to double-check their pairing assumptions, that's all.

Yes.

The last thing you want to have is, you complete a Phase III study and the -- you made some assumptions that weren't correct in terms of standard deviation and you didn't have an opportunity to resize.

That's crazy.

So in terms of timing, we need half the subjects through 24 weeks before we do that.

So is that going to be this year?

Maybe not, but I'm not worried at all about the timing or outcome of that analysis.

And our next question comes from Tazeen Ahmad of Bank of America.

Maybe just on big picture, as you think about the organization post-merger in terms of the commercial organization that you want to build, you've mentioned, Jon, that you're -- you have 2 late-stage assets.

One is in angioedema and one's going to be oncology.

How are you thinking -- or rather, has there been any change to how you're thinking about building out the commercial structure?

And can you give us a sense of how big of an organization you foresee having?

Yes.

We look at refractory melanoma, metastatic melanoma, as an orphan indication.

And in terms of size of commercial infrastructure, similar to a rare disease.

So it'd be like having 7353 for HAE and having an L2 inhibitor for FOP, right?

You're not going to use the same sales force because they don't call on the same people, but both are very small, and both are highly profitable.

And so both make sense.

And so depending on how partnering discussions evolve and what deal structures end up happening, we'll see how that all plays out.

But you're right, if we end up -- if the new company takes 2125 forward in metastatic melanoma, it's a small sales force calling on a small number of physicians.

Can you give us a little bit more color on what you mean by small?

Certainly less than 100, probably less than 50.

I mean, for HAE, for example, you're looking at a sales force of somewhere in the 40s, 30s to 40s.

And so small.

Okay.

And then, as you grow closer to having pivotal data readout, is there any update on market data in terms of preferences?

Obviously the (inaudible) study has been ruled as encouraging.

You mentioned that you're getting patients that are both currently on prophylactic treatment as well as patients that are on acute-only treatment.

Is there a specific population that you think would be your sweet spot, given what you know about the profile of your drug thus far, that you think you could particularly have strong traction with right from the beginning?

Yes.

I think obviously people that don't like needles is a great spot to start.

And our market research says somewhere between 50% and 22% of patients are still on [antigens], and so going after those folks is a no-brainer.

But there's also the switch.

I mean, we've had patients that we've heard of that are currently on prophylactic therapy that are stopping it to go onto our study.

And it's not just CINRYZE.

And so that's encouraging to us as well.

And we've talked about ways to enhance the switch.

Our market research is very solid right now in terms of preference, and maybe it's worth walking through that real quickly again.

So we've looked at or talked to 178 U.S. physicians who treat HAE in 101 patients, and we presented them in a conjoined analysis with the profile of Haegarda, the profile of lanadelumab, prior to the data, but with a really high response rate, I think north of 80%, with a once-a-month.

So it's best-convenience dosing, once-a-month injection.

And then we had the profile of 7353, and we threw in the kitchen sink, because it's easier to take that stuff out later than it is to put it in.

And we held everything constant and varied the efficacy of 7353, and the preference share largely stayed the same from a 55% reduction all the way up to an 85% reduction.

And what that tells us is that there's a really strong preference for a once-a-day oral medication.

And so we're really excited about that data.

We'll continue to run market research as we get closer to launch, with new products on the market, but the initial findings are extremely encouraging.

And then last question, Jon, assuming that Shire does get approved, and once they announce pricing, does their pricing have any impact on the price that you're thinking for your product?

Of course.

Your competitor's pricing always is interesting to know.

And so this is a case where coming in after is actually helpful, and in particular in Europe it will be interesting, because that's a bit more challenging.

But yes, that will definitely be helpful to us.

And as I've said repeatedly, with a small molecule and a small-molecule cost of goods, the flexibility we have is the best of any competitor in the space.

And we do have a follow-up question from Charles Duncan of Piper Jaffray.

Just had a quick question on 7353.

Can you remind us of what your plans are to move into more adolescent or pediatric patients for that candidate?

Sure.

So the first thing is, whenever we go to patient summits, we have mothers or fathers with their children come up to our table and ask us when we're going to have a pediatric formulation.

So you have to have pretty convincing evidence of safety and efficacy in adults, especially with a long-term therapy, before proceeding down in the ages, so I'm happy to say that the APeX-2 study does include adolescents.

So the next step after that, after we generate that type of safety efficacy data, is to walk down into earlier age groups.

I think that we recognize that that's going to be an important set of studies.

It would be very handy to have a formulation that could be adjusted for the age ranges.

So to support that work, we'll pursue creating a special pediatric formulation.

So I think that that's all for the future, but -- and commercially it may not be that important, but it sure is very, very, very important to families with hereditary angioedema, and so that's something we want to pursue.

Yes.

Bill and I have a number of mothers who have children with HAE that continue to encourage us to move quickly to get to pediatric patients, so we always keep that in the forefront of our mind.

Good deal.

So just -- I wanted to ask a question or 2 about the merger.

The first one is kind of fact-based and perhaps it's a bit premature yet, but have you identified and secured the plan in personnel regarding clinical development leadership post-merger?

Yes, I'll take that one.

So Bill will definitely stay with the new company and will be CMO responsible for, obviously, the HAE program and other rare diseases.

And Joanna will stay with the company and see 2125 and the oncology program through.

So these are 2 late-stage programs that are moving into Phase III, and so making sure that the trains run on time and we hit our time lines and move our programs forward is really important.

So disrupting those teams makes no sense.

Yes, makes -- that makes sense to me.

And I guess I wanted to ask, maybe, a couple of questions of you, Jon.

Not sure there's an answer here, but you've been pushing this elephant up the stairs for a while, and I think you mentioned a decade or so and really poured a lot of thought into it, and I'm wondering what was the key trigger here for timing?

Was it the data on 2125 or some other consideration?

Yes.

Like I said, we've been looking at strategic options for the majority of that 10-year period and just didn't find one that ultimately made sense.

And this one made complete sense now, right?

And some of that had to do with both companies having great data in their Phase II programs and moving into Phase III.

Some of it had to do with complementary discovery engines that we thought not only allowed us to go after more targets, but to put the 2 together and go places maybe others can't.

And the financial flexibility was really important in this as well.

And so all of that combined convinced us, both management and the board, that this was a compelling transaction that could lead to much greater value than BioCryst as a standalone company.

And so that's why we're doing it.

Okay.

Well let me ask that question again in a different way, which is kind of a silly sell-side attempt to further understand your thinking, and that is: When -- I mean, you talked about synergies, and I absolutely agree that the pipeline's being -- is more diversified and has critical mass and potentially opportunities to monetize some of the assets, but I'm wondering if the strategy chosen versus, say, being acquired, reflects any changes that you see in the HAE market dynamics or concern relative to 7353 value proposition?

I always thought that as that asset got over the goal line, that the company would be acquired.

Yes.

So listen; companies -- somebody, a banker, I think, told me this -- companies are bought, not sold.

And the way we look at this, we first off feel that our valuation in the market right now is underappreciated for sure, and you'll see that when you look at the proxy and see how we valued the company.

And then secondly, and this is the most important point, is how do we create bigger value over a longer period of time, right?

And just flipping the card on APeX-2 gets you some value.

But if you've got a pipeline that's appreciated, and you've got a discovery engine that's appreciated, and you have another asset that's going to market that's appreciated, you can build a company that has much greater value and sustainable value for shareholders.

And so that's what we see.

That's the strategy, and that's how we made the decision.

Okay, that's helpful.

I just wanted to ask one more question, and that is kind of related to when I talk to investors, they often prefer risk diversification across a portfolio of different positions, and this merger clearly seems to be a good way to build a company but less so a stock, at least in the short run.

And because in the past it was clearly a pure-play HAE company.

And I'm going to ask you to speculate here, but what milestones would you point to in the future that may reaffirm your conviction in the strategy?

Anything in particular?

Yes.

I think the ASCO update on the readout of 2125 will be an important event, right?

They've got 5 out of 10 responders.

I think they'll have up to 21, or maybe even more than that, at the time they do the ASCO readout.

So understanding what kind of response rate we have at that point in time will be very important.

Flipping the card on 8400, we said there's greater risk because there's no proof-of-mechanism data like you have with 2125.

But that card will be flipped.

If that's positive, that's great.

If it's not, it'll be stopped.

And then the readout we said in the second half of the year on the 750-mg cohort with ZENITH-1 will give us a really good sense not only on the primary endpoint but the second endpoints as well, and what are we finding, as Bill says, in the modern era, when patients are treating themselves at home much quicker than if they had to go into the clinic?

And then of course the progress that we're making on both our pivotal studies, 2125 and APeX-2 with 7353, and then looking into next year, the data readout on APeX-2, and also moving our L2 inhibitors into the clinic.

I mean, very, very exciting, number of catalysts in the combined company that will show progress and give you a sense of, does this strategy make sense?

Thank you.

And this does conclude our question-and-answer session.

I would now like to turn the call back over to Jon Stonehouse for any closing remarks.

Thank you.

Again, we're pleased with the significant progress we made in 2017 as well as our strong start in 2018.

We're focused on moving our programs forward and hitting our time lines, and we look forward to completing our merger with Idera to position us to deliver enhanced value to shareholders beyond what we could achieve as a standalone company as well as life-changing therapies to more patients suffering from rare diseases.

Thank you and have a great day.

Ladies and gentlemen, thank you for participating in today's conference.

This concludes today's program.

You may all disconnect.

Everyone have a great day.