Capstone Holding Corp (CAPS) 2009 Q2 法說會逐字稿

Good day, everyone, and welcome to the Capstone Therapeutics second quarter 2009 operating results conference call. As a reminder, today's call is being recorded. (Operator Instructions). And at this time, Mr. Dana Shinbaum, Vice President, Business Development for Capstone Therapeutics, will make some opening remarks. Please go ahead, sir.

Thank you. Before we begin, I call your attention to our Safe Harbor statement on slide number two. The slides are available at capstonethx.com under the Investor section of our website. Today's discussion may contain forward looking statements about the business prospects of Capstone Therapeutics. You may review a list -- a description of the risks associated with our business in Capstone's 10-K reports filed with the US Securities and Exchange Commission. Please also see our website, www.capstonethx.com, for additional information. Joining me today are Mr. Jock Holliman, Executive Chairman, and Dr. Randy Steer, President of Capstone Therapeutics. Here now is Mr. Jock Holliman.

Thanks, Dana. Good afternoon, everyone. Today we will give a progress update on our clinical activities. Please recall our decision in January 2009, based on compelling preclinical and phase 1 clinical safety studies with AZX100 to proceed into phase II human dermal scarring studies. We remain in the enrollment and execution stage of these clinical trials. Please turn to slide three. This is our corporate profile slide. Many of you have seen it before. We're developing two novel peptide molecules for dermal scarring and vascular disease. We have a strong IT portfolio and a skilled staff in all biopharmaceutical disciplines.

Slide four, please. This is a rendering of AZX100 at the molecular level. This is our flagship compound. It's a heat shock protein 20 smooth muscle relaxing and antifibrotic cargo, coupled to a protein transduction domain carrier. This is a very novel and efficient platform. Slide five. AZX100 is a unique peptide. Due to its novel construction, it bypasses cell surface receptors and directly affects the [actin cytoskeleton] inside the cell, relaxing smooth muscle and reducing or inhibiting fibrosis. Targeted indications include dermal scarring, pulmonary fibrosis and vascular applications such as intimal hyperplasia and end stage renal disease. We are encouraged by the preclinical results obtained today in both pulmonary fibrosis at Lovelace Respiratory Research Institute, and in vascular access at the University of Cincinnati. Capstone is pursuing development collaborations in both of these areas.

Slide six. The broad categories of dermal scarring include cosmetic and aesthetic, post-surgical scars, and severe scars, such as keloids. We believe these markets may representing aggregate drug revenue potential well in excess of $1 billion. Slide seven. The dermal scarring area covers a broad range of indications, from atrophic to hypertrophic to keloid, as you see them depicted left to right. Keloids are among the most difficult to treat. They occur most often in pigmented skin. They can cause loss of range of motion when located near a joint, and they are visually prominent. The standard of care in dermal scarring across the board varies as well. Even among plastic surgeons and medical dermatologists, there may be disagreement as to proper treatment. We intend to test whether AZX100 can effectively treat the full range of scarring indications.

Page eight, please. This slide drills a little deeper on the issue of keloid scarring. It is described in the dermatologic literature as a tough problem, a progressive growth that extends past the original scar and invades and destroys normal skin and tissue. The cause of keloid formation is still not fully understood, although several theories have been proposed. The fact remains that there has been little innovation in keloid treatment in the past 20 years. Typical therapies may include steroid injections, radiation, pressure treatments, or antimetabolic agents, such as 5-FU, which is also used in cancer treatment. There are no approved drugs specifically labeled for keloid treatment, or in the broader category of dermal scar reduction. This market is effectively underserved.

Slide nine, please. At present, we're managing two clinical programs in dermal scarring. One, an arthroscopic shoulder surgery scarring trial targeting reduction of atrophic and possibly hypertrophic scars; and two, a keloid scarring program which targets prevention of keloid reformation following surgical excision of the original scar. As we announced on July 14, 2009, we have completed enrollment in the first of our two phase 2 pilot studies in keloid scarring. Enrollment is proceeding in both the shoulder surgery study and in the second keloid surgery study. These programs, per FDA safety guidelines, have lengthy follow-up periods, as disclosed. Please turn to slide ten. Reviewing our key financial metrics, we ended the quarter with $41.1 million in cash, within guidance. No long-term debt. You see our stock range, $0.40 to $0.99, in the last 52 weeks. Our market cap as of yesterday closing 26.5 million. Our cash position equates to approximately $1.01 per share.

Slide 11, please. This picture of our balance sheet is included to show principally our cash and short-term investments totaling $41.1 million as highlighted. Slide 12. For the quarter, we lost 3.116 million, equivalent to $0.08 per share. Our financial release has further details. Page 13. Capstone has done a solid job of advancing its programs while minimizing use of cash. Since this management team took over in mid-2006, we have been favorable to guidance. 2009 guidance estimates cash usage of between 14 million and $16 million. We reaffirm that guidance at this time.

During the second quarter of 2009, we elected to reduce headcount by five full-time employees and two part-time employees in order to help finance an expanded clinical effort in dermal scarring. We wanted to put our resources into the trials that create value. We continue to focus on preserving cash while spending appropriately to move our programs forward. Slide 14. In summary, we are focused on the execution of our clinical programs in dermal scarring, and we're planning for success. The investment thesis features whether or not AZX100 will show efficacy and ongoing safety in dermal scarring. The downside of that is protected by our cash asset. This concludes our second quarter progress report. We are now open to questions.

Thank you, sir. (Operator Instructions). We'll go first to [Jim Stuckert] with Hilliard Lyons.

John, Jim Stuckert here -- Hilliard's. I want to thank you again for following the script that you've done and you've laid out for the last several years, and certainly wish you success as you go forward.

We appreciate that, Jim. Thank you.

Certainly. My question today, what are the clinical end points that you will be evaluating in these studies?

I think it would be good for me to include Randy Steer, our President, M.D., Ph.D., who heads our clinical programs. Randy, you're on. Could you field that, please?

Sure. Can you hear me clearly?

Yes.

Good. Well, we divide the clinical end points into two broad sets, called primary objectives or primary end points, and secondary objectives or secondary end points; and recall that there are essentially three clinical trials ongoing; what we call the 03 trial, which is a shoulder arthroscopy trial, and then the 04 and the 05, which are at keloid trials using different sets of doses of AZX100. The primary objective or the primary endpoint is to evaluate the efficacy of our drug candidate AZX100, based on differences among the dosage groups in what we call the Patient and Observer Scar Assessment scale, or abbrevieted POSAT scores, at the 12-month point following the surgery. This is the same objective in all three studies.

Now, the set of secondary end points includes basically the following -- I hope I don't miss one here. But to determine AZX100 efficacy based on what we call between group mean differences, and a visual analog scale -- that's a very, very common way of scoring performance in a variety of clinical trials, and this will be done by independent and blinded raters who are specialists in the field for our two-dimensional photography we carry out in the study. Now in addition to that, there will be additional studies of certain variables in the Patient and Observer Scar Assessment Scale as a secondary endpoint. And there's also an evaluation of 3-D photography that's carried out at regular intervals on the patients, and that will be done using this very sophisticated and very sensitive digital camera that we use at the various clinical sites. In addition to that, there are the standard safety things such as adverse events -- potentially serious adverse events -- vital signs, the usual kinds of safety things that we look at -- clinical parameters and blood studies and so forth. And then the final, if you will, determinant of safety is a biopsy. It's a small biopsy, but it's meant to get a histological study of the way collagen or these connective tissue fibers are oriented at the 12-month primary efficacy endpoint. So does that answer your question okay?

Yes. That's very detailed. I thank you so much.

Thank you for asking the question.

Thanks, Randy. I'll add a few comments for clarification on our programs. Indeed, these are programs, according to protocols that have 12-month end points, so the FDA has mandated those time lines, principally to observe safety. We are obviously driving to show some efficacy. And the two general study categories we will be taking some internal observational analysis in the next -- it's seven months in the '03 study after treatment of the last patient, and six months in the two keloid studies. So in the Q1 2010 and Q2 2010 time frame, we will ask our statistician to take an interim analysis, or what's called a futility analysis in the term of art; and the futility analysis has four possible outcomes. One is that a signal of the safety issue with AZX100 could develop, which mean we would stop enrollment in the trial and continue to follow existing subjects for safety through the 12-month endpoint. But the second development could be an indication that the product is not showing any effect, referred to as futility; and statistically at that point we would not have any opportunity to show an effect, so that could mean halting the trial.

The third outcome would be a positive trend, and we would be advised qualitatively by the statistician that you have a trend, continue the study. And fourth would be demonstration of statistical significance based on analysis of selected efficacy variables, and that is an unlikely -- but possible -- outcome, given the fact that we're taking interim analysis on less than the full power of the study population. So the bottom line -- and I do want to get this on the table for everybody, we are constrained by the agreement with the FDA and the words of our protocol relative to disclosure of statistical results on an interim basis. So what we can talk about in the first quarter of 2010 and the second quarter of 2010 -- again, all subject to our enrollment filling in as we expect -- will be basically a signal through our discussions and our actions. If we continue the studies, that is a very clear signal that we have seen a positive trend, and our actions are basically going to have to speak louder than our words. So I just wanted to hopefully clarify what our pathway will be. Assuming we have a signal in the early part of 2010, our intent is to immediately embrace, and we are already actually teeing up some contacts with companies that might be interested in our drug in dermal scarring. Any additional questions?

(Operator Instructions). And at this time, we appear to have no further questions.

Thanks very much, everybody, for tuning in. I know it's holiday season. We appreciate it. And right now, we are focused completely on enrolling and executing our trials. We'll share any developments with you as soon as they occur. Thanks for your support. Good day.

And that does conclude today's conference call. Again, we thank you for your participation.