Capstone Holding Corp (CAPS) 2005 Q2 法說會逐字稿

Good day, everyone, and thank you for joining this OrthoLogic Second Quarter Earnings Results Conference Call. Today's call is being recorded. For opening remarks and introduction, I would like to turn this call over to Melanie Friedman of Stern Investor Relations. Please go ahead.

Good afternoon. With me today from OrthoLogic are James Pusey, President and Chief Executive Officer; Jim Ryaby, Senior Vice President and Chief Scientific Officer; and Sherry Sturman, Senior Vice President and Chief Financial Officer. During today's call, Sherry will review our financials for the quarter and our 2005 guidance. Jim will follow with an update on our clinical program. James will then wrap up with our review of our milestones, and then we will take your question. Before we begin, I would like to remind you that when we discuss our future expectations, plans, and prospects, our point of references is, how we as a company think, expect, or believe that future will work based on information available today. No one can predict the future and there are risks that could cause the Company's actual results to differ materially from these statements. You may review a list and descriptions of these risks in the reports we file periodically with the Securities and Exchange Commission. I will now turn the call over to Sherry.

Thank you, Melony. Starting with the statement of operations, I would provide a brief overview of the second quarter activity. General and administrative expenses were 1.3 million for the quarter compared to 616,000 in the second quarter of 2004. Research and Development expenses were 6 million in the second quarter of 2005, compared to 4 million in the second quarter of 2004. Operating expenses for the quarter were 7.3 million compared to operating expenses of 4.5 million in the second quarter of 2004. The increase in operating expenses over the prior year is result of our expanded efforts in research, development, and clinical activities for multiple indications of the Chrysalin product platform. In addition, the Company made a payment of 400,000 in the second quarter to the University of Texas for the assignment of certain patents related to Chrysalin. In the second quarter of 2005, our net loss was 6.6 million or $0.17 per share compared to a loss of 4.2 million or $0.12 per share in the second quarter of last year. For the six-month period our net loss for 2005 was 12.1 million or $0.32 per share compared to the first half of 2004 loss of 7.4 million or $0.22 per share. At the end of second quarter we had total cash, cash equivalent and marketable securities of 91.1 million. We utilized 6.1 million of our cash resources during the second quarter of 2005.

I will now turn to our 2005 guidance. We anticipate our cash expenditure to be approximately 30 million for the fiscal year, netting 7 million escrow balance from the sale of our healthcare business, we expect to receive in November, our net cash utilized during 2005 to be approximately 23 million. We expect our continuing operations to create a loss of approximately 28 million to 30 million during 2005. We believe that OrthoLogic remains in a strong debt free financial position with the ability to effectively implement our gross development strategy. In addition, our solid financial position allows us to explore other opportunities to potentially broaden our science base and consider other technologies that may compliment our current products, or look to expand our financial positions through other opportunities in the marketplace. That concludes my review of the financial status of the Company. Jim will now provide a clinical update.

Thank you, Sherry. We are making excellent progress with our late-stage programs for Chrysalin. Today, I will focus my discussion on our fracture repair program and our diabetic ulcer program, and then briefly highlight our preclinical programs. In our fracture repair program, this past quarter we completed enrollment of our Phase 3 study of Chrysalin in wrist fractures. We expect to collect data throughout the rest of 2005 and announce the results in first half of 2006. To review the trial design the study was a prospective, randomized, double-blind, placebo-controlled clinical trial in patients with displaced and/or unstable distal radius fractures treated with intrafocal pinning or external fixation. The trial enrolled a total of 503 patients in 27 active US centers, who received either a single percutaneous injection of Chrysalin at 10 micrograms or placebo control. Patients will be followed through pre-op surgery, post-op at weeks one to eight and then weeks 10, 12, 26, and 52.

The primary endpoint is time to removal of immobilization and the secondary endpoints are radiographic evaluation of healing, range of motion, grip strength and the Patient Rated Wrist Evaluation outcome instrument. We are also conducting a Phase IIb trial in distal radius fractures that will explore the lower dose range of Chrysalin versus placebo. Enrolment is ongoing in this study with a target enrollment of 500 subjects and approximately 60 sites. This is more than twice the number of sites in the Phase III study. To date we are actively enrolling from more than 40 sites and additional sites are in the IRB approval process. Patients will receive a single injection of Chrysalin at one, three, ten or 30 micrograms compared to placebo control and will be followed at the same time points prescribed for patients in the Phase III study with the same follow-up increments.

Before the end of 2005, we intend to communicate our forecast for the date of full enrolment in this 500 patient Phase IIb study. In Spine Fusion, we have finished collecting data from the 55 patient safety study. Our preliminary report will be available late this summer and a full report submitted by the end of 2005. Our analysis thus far further validates the favorable safety profile of Chrysalin. In fact, to date in all animal and human studies there have been no adverse event associated with the use of Chrysalin. We are currently considering the future of the spinal fusion program as this therapy is now competing with the use of artificial discs and several bone morphogenetic protein-based products and as such we believe we would effectively be fit to market in this already crowded segment.

Now I will move on to our Diabetic Ulcer program. You are probably aware that diabetes has a significant prevalence in the United States with upwards of 16 million patients. Diabetic foot ulcers occur in up to 15% of all diabetic patients and the cost of foot ulcer therapy can be very high. We are exploring the potential of Chrysalin as a treatment for diabetic foot ulcers and have found excellent proof of principle results in our Phase I/II clinical trial. This trial was as a randomized, double-blind, placebo-controlled study of 60 patients in four centers. Patients were given twice-weekly topical applications of either placebo saline, one microgram of Chrysalin or 10 micrograms of Chrysalin and all patients received standard of care including offloading. Once again, there were no safety concerns with Chrysalin in this patient population. The data showed significant effects in the foot ulcers subpopulations of 35 patients. We found increased 20 week total percentage closure of 72% compared to 33% for patients who received placebo with a statistically significant P value of 0.05. The median time to closure was significantly decreased by 50% with a P value of 0.03. We nearly doubled linear rate of one closure, which increased by 82% in the Chrysalin-treated group also statistically significant. We plan to submit these promising results to a peer-reviewed journal this year.

Our next step in this program will be the development of the pivotal Phase II dosing and efficacy protocol. Implementation will depend on the continued successful development of our gel formulation and the submission of an amendment to our active IND for this indication. Now, I would like to briefly highlight some of our preclinical program starting with cartilage defect repair. This is a first to market opportunity and we have already seen positive cartilage defect repair in animals using Chrysalin. We have a sustained release microsphere formulation and development and we are currently preparing an IND application for this indication. From our cardiovascular research, we have seen positive preclinical animal studies, including the use of Chrysalin in a pig model of Myocardial Ischemia. In addition, we are testing Chrysalin's potential in Myocardial Revascularization. We look forward to advancing these preclinical candidates forward.

Now, I will turn the call over the James to wrap up.

Thank you. Jim and thank you Sherry. As you can imagine we are very excited about the progress we made last quarter with our Chrysalin product platform highlighted by the completion of enrollment in our Phase III wrist fracture trial, and the publication of preclinical mode of action data on fracture repair. The preclinical mode of action study published in the Journal of Orthopedic Research was conducted among researches led by Dr. Joseph Lane of the Hospital for Special Surgery in New York. Dr. Xin Min Lee (ph) of the University of Chicago and our own doctor Dr. James Ryaby. The study showed that Chrysalin promotes fracture repair by increasing induction of a number of growth factors and enhancing expression of inflammatory mediators, and neovascularization-related genes.

As you can see from genes clinical update we are very focused on advancing our lead programs in accelerating those fracture repair and diabetic ulcer healing. We are also dedicated to optimizing delivery of the Chrysalin compound in several formulations, including injectible saline, gel, and sustained release microspheres. As an alternative to the saline formulations that we are currently using in our trials, we are developing a sustained release microsphere formulation for use in cartilage repair and a gel formulation for use in diabetic ulcers. To date these activities are progressing as planned. This of course brings me to our upcoming milestones. In 2005, we expect to complete efficacy data collection in the Phase III wrist fracture trial. Complete follow-up for the Phase I/II spine fusion safety trial. So, mixed Phase I/II data from the diabetic ulcer trials to a peer-reviewed journal. Complete work on a gel formulation of Chrysalin or a diabetic ulcer product and develop the Phase II efficacy and dosing protocol for the first Chrysalin gel formulation to be used in a diabetic food ulcer trials. And finally, prepare the IND for an initial human clinical trial for cartilage defect repair.

In short, OrthoLogic has truly become a biotechnology-based drug development company focused on the potential of therapeutic peptides. Our strategy encompasses the identification, development, and successful delivery of such noble compounds. We believe that our ongoing late stage trials in fracture repair and diabetic ulcers combined with a developing preclinical pipeline gives us and our shareholders significant client value opportunities based on a therapeutic peptide technology platform.

We very much look forward to updating you on future calls, and we will now take your questions, and I am now going to hand the call back to the operator.

[OPERATOR INSTRUCTIONS]. Bill Plovanic, First Albany Capital.

Thank you, good evening.

How are you doing Bill?

Good. Just couple of questions here. First of all you talked about the optimizing the formulation for the sustained release and also for the gel or the microsphere and the gel. I was just wondering if you could give us an idea of the amount of work needed or the difficult level in developing such alternative formulations? And then secondly, you talked about the Phase IIB for fresh fracture. I was wondering if you could give us an update may be on the number of patients enrolled or approximately the percentage of inpatients enrolled to date?

I think if we do with the formulation question first, and then I am going to ask Jim to take home the IIb patients enrollment question. Firstly, as you all know, Chrysalin is a simple peptide. It is a 23-amino acid peptide. It is synthetically manufactured. And I think it's a very specific peptide, which means that the way that it behaves in formulations, it is easy to predict and then to prove in the formulation process. But that does not mean that we don't have to go through all the normal formulation box-checking steps we do, and we have done that for both the gel formulation and for the microsphere formulation with major formulation manufacturers. Indeed in the microsphere formulation, the microsphere themselves are well known to regulatory authorities around the world. And indeed there are products like Zoladex and Lupron that are on the market today that have exactly the same formulation. And to date, we have had no issues with either that microsphere formulation development or indeed with the gel formulation. So our predictions are as we expected, so far so good. I am going to handover to Jim, just to take us through the IIb patients.

Well Bill, I think as I said in my written comments, right now we have just over 40 sites enrolling patients. We expect to have up to 60 sites in the trial. And clearly, I think once we have IRB approvals at all sites, and we can monitor the rate at which they are enrolling. We will be able to provide an accurate guidance so to you and everyone who follows OrthoLogic, and our prediction is that we expect by the end of this year, we will be able to provide you with a more accurate assessment of what our enrollment estimates are. So, that's really all I can tell you tonight.

Justin Cable, B. Riley.

Just a couple of quick questions. On the target enrollment of 500 patients for the Phase IIb trial, is that what your previous expectations were for this particular trial?

I think as you know in the first quarter call, we were clear that there has been a delay to the rate of enrollment for that study. That delay is well behind us now. Our IRB approvals are accelerating. The fact that we have more than double the number of sites in the Phase IIb study compared to the Phase III study leaves that our expectations for the rate of enrollment are that they will accelerated, significantly accelerated. What we do, we all completely appreciate that the last patient in, so the final enrollment date is a very important date, and we want to be able to communicate that date to you with the best possible accuracy and the best possible data. That's why we want to wait until we have all 60 sites up and fully enrolling, and we have a clear target to do that as soon as possible. And as soon as we have a clear enrollment rate, which is stabilized, we will be able to communicate when the last patient will be recruited to study.

That's fine. The 500 accounts that -- is that in line with your previous expectations --.

It's actually the same. It's exactly the same number. Not a change there whatsoever. So, it is a large -- assuming that we were 503 in Phase III study. So, this would be essentially the second largest orthopedic therapeutic study done so far.

And my second question was just on the spine fusion. You were commenting on how kind of a crowded segment of the market that is. So, are you basically suggesting that this spine fusion is going to be an application that you are not going to focus on going forward, or I guess what's kind of the overall status for that?

I think strategically we have to move Chrysalin forward through its late stage development plan as fast as possible, I mean that's the right thing for patients and it's the right thing for our shareholders. What we see in the spinal fusion opportunity and it is still clearly an opportunity based upon the animal models, where we have positive results and also the safety study where to date, the data is affirmative, why we have no safety issues. We see this as a life cycle development opportunity. So Justin, we're not completely walking away from it, but in terms of our priorities, we are focused on getting the fracture repair indication as quickly as possible and accelerating the diabetic foot ulcer studies based upon the very positive pivotal, one of the pivotal but it is positive proof of principle to our results in diabetic foot ulcer.

[OPERATOR INSTRUCTIONS] Eric Miller, Heartland Advisors

I just actually following up on Justin, on the spine would there be a thought of, you know, its probably equally or more important to allograft folks. Right now, a product such as crystalline to compete with PMPs and artificial? Will there be any thought of teaming up or somewhere like that in the interim. I certainly understand again the need to focus?

Sure. Eric thanks you. I mean it gives us an opportunity to talk about our strategies there. We' re are -- very open to collaboration agreement, I think we've got to declare those agreements have got to be synergistic and by that we mean two plus two equals five. That conveyed from the point of view of accelerating development in our programs. Given our financial situation that it would not be simply a financial play. We're very interested in something that is going to move crystalline forward and the way that adds value to it scientifically and from a drug development point of view. So, I'm not avoiding the answer, I think when the right collaboration agreement, it's being discussed, we will look at it very positively. We're not going to close the doors. It is a possibility for that.

Okay. On the other Phase II for the diabetic foot ulcers that would be forthcoming, I guess as you described dosing and more intense dosing and safety study. Can you sort of just outline the parameters, you know, that you might think of that number of patients that you would expect to enroll in the studies such as that in just very generic time frames?

Okay. Certainly this is an opportunity for us, it is a -- we like to describe it is an excellent proof for principal study and not only it has a statistically significant result, but it has a dose response trend, which supports an analysis that this is not a statistical collaboration, it is like real effect in diabetic foot ulcers. And as you know that this is the disease, which is very significant on that medical need. Disease which, although, we can't speak for regulatory authorities. We think regulatory authorities would look on this favorably from a acceleration of approval point of view. So we' re going to move -- Eric we're going to move this fast, as fast as we can and you will see that in the way that we describe this focus on putting this together. As far as the number of patients are concerned, we want to make sure that we statistically on a power point of view clearly show the right dose for this drug as I said we've a dose response trend and all proof of principal study. We are going to make -- has to make sure that we put a large enough study together that not only shows clear efficacy, but also shows a clear, accurate dose. In terms of accelerating we would also want to do a large enough study so that it can be a pivotal study in the overall program. I think the final patient numbers, we would rather wait until we have had our discussions with the FDA and we will be doing that as soon as we have submitted our amendments to the active IND that we already have in this indication. And that amendment will simply be the CMC section. So the chemistry manufacturing and control section because of course we will be submitting a gel formulation rather than a straight line formulation. That where that stands.

Fair enough. Last question. Anything new on the competitive front, especially in the orthopedic room?

I am going to hand up one over to Jim. I would say if you are referring to the fracture repair, we are aware of a major pharmaceutical company that has a compound which is very early stage, but apart from that, Jim, I don't believe we have anything else on the horizon.

Well, there was a report actually just a few weeks ago, if my memory is correct, from a company called PHYSIOMED about a new bone stimulatory peptide, this was presented at the Spine Conference in Vance (ph), Canada, and we -- these were just pre-clinical animal studies, and so, we don't have any information yet on a exactly what this peptides related to or what the safety profile the peptide looks like, but clearly this peptide, and there are other peptides that people are looking at around the world, that could ultimately one day detected in orthopedic indications, but certainly no one thus far in clinical development.

We would say that in terms of a competitor that is in clinical program, which is a Phase I program, we are at least three years ahead of them, at least, and in terms of these or the peptides, which has not entered man yet, we are significantly further ahead than that.

And I guess Pfizer is still the only one that I've heard of that's done anything in humans?

That's correct.

Okay, and no update as far as their program is?

You would obviously -- I am really sorry -- you would obviously have to ask them about that.

David Cohen, Clinical Advisory Group.

You already answered my questions. Thanks very much.

[OPERATOR INSTRUCTIONS]

Well, I think we're probably going to encourage one more question, and if not, then I am going to thank everybody for joining us today, and let you know that the management team is certainly looking forward to the next call, and thank you very much indeed ladies and gentlemen.

So, once again ladies and gentlemen, that does conclude today's conference. You may now disconnect.