Capstone Holding Corp (CAPS) 2009 Q4 法說會逐字稿

Good day and welcome to the Capstone Therapeutics Company update conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Dana Shinbaum, Vice President Business Development. Please go ahead, sir.

Thank you, and thanks to everyone for dialing in today to the Capstone Therapeutics Company update. Today's slides are available at CapstoneTHX.com under the investor section. All slides are available in a file listed under the investor section on our website.

Before we begin, I'll call your attention to our Safe Harbor statement on slide two of the presentation deck. Today's discussion may contain forward-looking statements about the business prospects of Capstone Therapeutics. You may review a list and description of the list associated with our business in Capstone's 10-K reports filed with the US Securities and Exchange Commission. Please also see our website, CapstoneTHX.com for additional information. At this time I'd like to turn the call over the to Mr. Jock Holliman, Executive Chairman, Capstone Therapeutics.

Thanks, Dana and thanks for the nice attendance for today's call. Much appreciated.

If you'll pull up the slide deck and move to slide number three, this is our corporate profile slide. We're developing two novel peptide compounds for dermal scarring, pulmonary and vascular disease. We have a strong IP portfolio and a strong staff in all biopharmaceutical disciplines.

Slide number four, please. Our lead compound is AZX-100, a smooth muscle relaxing, and antifibrotic peptide coupled to a protein transduction domain carrier that allows it to get across the cell membrane and act directly on its target within the cell. This offers fewer side effects compared to other drugs. At present, the indications we are pursuing include dermal scarring and pulmonary disease.

Please turn to slide five. The rationale upon which we proceeded to Phase II trials with AZX-100 in dermal scarring is presented on this slide. We based our decision to enter human Phase II proof of concept trials on very solid preclinical and Phase I clinical safety evidence.

Slide six. Why are we excited about AZX-100 in dermal scarring reduction? Our most recent market research data confirms that there are approximately 22.5 million surgical procedures performed annually in the US that can result in some form of scar. Preclinical and early human clinical safety data suggests AZX-100 is safe, and that the product has biologic activity. The dermal scarring market is underserved. Currently there are no prescription medications specifically indicated and approved by FDA for dermal scar prevention or reduction. Further, we believe that there is a potential for favorable pricing and even reimbursement for a product that performs therapeutically in this area.

Slide seven. Pathway to commercialization. The potential market for AZX-100 in dermal scarring could be comparable to the market for drugs such as Botox for wrinkles. AZX-100 also has the potential to serve unmet medical needs in keloid revision and general surgical scarring.

Slide eight. The dermal scarring arena covers a broad range of indications from atrophic to hypertrophic to keloid scars. Keloids are among the most difficult to treat. They usually occur in pigmented skin. They can cause loss of range of motion when located near a joint and they're visually prominent. We intend to test whether AZX-100 can effectively treat the full range of scarring indications.

Slide nine, please. Slide nine drills a little deeper into the issue of keloid scarring. It's 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. Cause of keloid formation has not yet been fully determined. There has been little innovation in keloid treatment in the past 20 years. Typical therapies may include steroid injections, radiation, pressure treatments or anti-metabolic agents such as 5-FU. As mentioned, there are no approved drugs specifically labeled for keloid treatment. This market is substantially unserved.

Slide ten. As mentioned, we're managing two randomized double blind placebo-controlled clinical programs in dermal scarring at present. The first is an arthroscopic shoulder surgery scarring trial, targeting reduction of atrophic and possibly hypertrophic scars. Our enrollment was completed in December at 150 patients. Secondly, we have a keloid scarring program targeting prevention of keloid reformation following removal of the keloid by a surgeon. Enrollment is complete at 120 subjects. These programs, per FDA guidelines, have lengthy follow-up periods. The primary end point as you may be aware is an objective validated assessment of the scar by both the physician and the subject.

Slide 11, please. Secondary end points include a number of standardized objective scarring metrics, including data obtained via multiple independent reads of two dimensional and three dimensional high resolution digital photography. We plan to conduct for internal purposes only an evaluation of data from these trials throughout the first half of 2010. The objective is to further refine our measurement techniques in anticipation of future trials as well as to confirm safety and the quality of the data set. Slide 12. We're pleased to announce that our AZX-100 keloid scarring investigators will present an overview of keloid scarring and introduce the potential of AZX-100 for this condition to the physician members of the American Academy of Dermatology at their upcoming meeting in Miami in early March.

Slide 13. Assuming clinical trial success, Capstone will seek a collaboration partner, licensed joint development partner to take the program forward in dermal scarring. The mid-2007 transaction involving Shire Pharmaceuticals and Renovo, both UK-based, worth a potential $825 million was consummated under different market conditions and only after substantial number of Phase II clinical programs. However, we believe there is a potential for significant collaboration with AZX-100 in dermal scarring, depending upon the results of our ongoing clinical trials.

Slide 14. Our key financial facts show that we began the fourth quarter of 2009 with $38.7 million in cash, no long-term debt, you see our trading range of $0.35 to $1.04 in the last 52 weeks, and our market cap has picked up recently, thank you, to $39.1 million. We will be releasing financial data under a separate press release, and possibly conference call during the second week in March.

Slide number 15. This is our cash slide, and as we've consistently established with you, we've done a great job of advancing our programs while minimizing use of cash. Since this management team took over in the second quarter of 2006, we've been consistently favorable to guidance. 2009 guidance estimates cash usage of between $14 million and $16 million. We will announce our Q4 numbers as I indicated in early March, but I will say at this time that our 2009 cash burn was favorable to the range of guidance shown on this slide. As far as 2010, we will continue to diligently manage our cash, deploying cash estimated in the range of $13 million for the current fiscal year.

Slide number 16. In summary, we're focused on the execution of our clinical programs in dermal scarring, and we're planning for success. The investment thesis remains unchanged. The upside is formed by a successful set of clinical trials this year, and a potentially lucrative corporate partnering event, and the down side of that is protected by our cash asset.

Slide 17. We made an announcement this morning which I think will hold interest for certainly all the existing shareholders. As you saw in this morning's press release, Capstone Therapeutics clearly puts stockholders first. We announced today our intent to propose at the 2010 annual meeting of stockholders an amendment to our certificate of incorporation to provide each holder of our common stock as of the record date of June 30, 2011, with the right under certain circumstances to require the Company to purchase all or a portion of such holder's common stock for cash at a formula-based price. A detailed description of the program is conveyed in today's release and will be formally presented in our annual meeting proxy.

The current biotechnology model is to take increasing levels of risk on declining cash reserves. We're breaking this model. We believe our clinical program affords AZX-100 every opportunity to prove itself in the management of dermal scarring, and we will succeed or not succeed based on our current trials. As we have repeatedly stated in past communications, this management team is not interested in developing a drug that delivers only marginal clinical benefit.

Should there be no compelling signal of AZX-100 efficacy in the primary or secondary end points, we will execute a strategic transaction to merge our cash and NASDAQ listing into a promising platform. Or should such a transaction prove less than advantageous to our shareholders we will liquidate the Company. Since the the second quarter of 2006, when this management team was put into place, we have met each and every major objective set by our Board, been consistently transparent with the investment community regarding our strategy, plans and programs, and carefully relentlessly managed our cash with discipline. With this stockholder put option, we're once again taking the unique step of putting our money where our mouth is, by providing stockholders with the ultimate vote regarding how their assets are deployed. We believe this program is novel within the biotech community, and we feel it's the right thing to do for our investors.

That closes my comments, we're happy to open the floor to questions.

The question-and-answer session will be conducted electronically. (Operator Instructions). We'll take our first question from Spike Loy with Biotechnology Value Fund.

Hi, Spike, good afternoon.

Hi, thanks for taking my call, Jock. First of all I want to say on behalf of the whole team over here, congratulations on this move on putting the shareholders first. It's greatly appreciated on this end, and we think it's a valuable move and can set a really, really strong precedent. So first of all, thanks and congratulations on that. And along those lines, I guess ideally this question could become moot when we get some great data at the end of the year, but come next summer, is there any color you can give us on what the value of that put may look like?

Sure. And thanks for the compliment. We're obviously trying to do all the right things for the people who own this Company. And we do believe then the success of our program and perhaps the put is overshadowed by a nice market cap come the middle of 2011. We've run lots of numbers. We believe we have a good working capital plan and a good cash usage plan through this year and the first half of 2011 and I will give you a range right now of $0.35 to $0.40 that we have targeted in terms of available cash as of mid-2011. We feel comfortable with that right now. We will be updating that range in every quarterly report between now and that time line. So $0.35 to $0.40 is kind of where our comfort zone is.

Fantastic. Thanks again.

You bet. Thanks, Spike.

(Operator Instructions). We'll pause for just a moment to give everyone an opportunity to signal. And we will go next to [Lloyd Simms with Simms Capital].

Hi, how are you? Just wonder if you could give me an idea, the estimated liquidation value, who's going could come up with that. In the press release it said it's being calculated by the Company. I guess if that's the case, are we getting at that point a fairness opinion and kind of what else will you do so that as a shareholder we feel that that liquidation value has been estimated correctly.

Good question, Lloyd and thanks for tuning in. First of all, we have to file an extensive disclosure document, should we reach the point of approaching the June 30 date. It's called a 13-E-3 document, and it's like an S-1. It kind of goes deep in every aspect of the Company. So we will obviously have independent counsel reviewing that. In all likelihood, although we haven't worked out all the mechanics of the put at this point in time, in all likelihood, a fairness opinion would be in order to make sure that the shareholders are comfortable and our Board is comfortable as we move through this process. So in all likelihood, I would say a fairness opinion would be involved.

Will we know the calculation before the annual meeting here in terms of voting on this? The formula?

We have a formula that targets available cash, less liabilities, commitments and contingencies. But I don't know that we'll have specific numbers at that time.

And just curious, I mean, why go this route as opposed to perhaps just dividending out the cash at that point? I mean, put it this way. If things go successfully which we hope they do, like you said the market cap will hopefully overtake and this won't be an issue. However if we go the contrary route, and it's not as successful, why not dividend up the cash at that point. And then have your shareholders, you're left with the shareholders that have IP in it, and as you said, merge that Company into another Company?

What we're effectively doing is transferring the decision to the shareholders by the put agreement. We did consider a dividend approach. It's just a different mechanical approach. But with this move, we place the decision directly in the hands of the shareholders. I think all too many companies, when they reach the point of facing a down side event, pull back from that down side event. And we wanted to send a very positive signal to our shareholders that we are managing this Company for their benefit. We're establishing performance time lines. We have the use of our cash in our clinical programs for through the middle of 2011 to create value and if we haven't created value by then, then we'll give the shareholders a voice. So mechanically, this is tantamount to a liquidating dividend but the decision is based with the shareholders.

Will we be taxing the dividend, then?

Lloyd, I have no clue. You're asking prospective questions. We'll be working through a lot of the mechanics of this in the next several months.

And just -- I'll get back, but correct me if I'm wrong, I appreciate that this allows the shareholders an opportunity but it also sort of allows I guess precludes, stuck in a binary thing, we're going to roll over and let it continue to slide or we're going to cash out. There's no in between where we get a portion of the cash and we also still get the value with the IP. It's sort of all or nothing, we have to go one way or the other; correct?

Yes.

Okay. I'll get back in queue.

Okay. Thanks, Lloyd. Appreciate your good questions.

(Operator Instructions). We'll go next to Ron Chess, a private investor.

Good afternoon.

Hi, Ron.

Any comment on product development and advancement? Or timing? Whatever you want to say.

Okay. Thank you for that question. As we've indicated earlier, we're taking a series of interim internal analyses on the 2004 and 2005 keloid programs and the 2003 shoulder program. And the 2004 study is presently under evaluation by our independent statistician and we're hoping to have a glimpse of internal data literally in the next week, week and-a-half. So that once again is something we're pretty excited about. We remain completely blinded at this point in time and we closed our insider trading window at the end of January to put some distance between any kind of clinical knowledge event. The 2005 trial we should have data the second week in May and the 2003 shoulder trial we should have interim data by the end of June.

So once again, these interim looks are not statistically powered. We hope to see safety. We hope to understand the organization of the data and the quality of the data set. We are taking monthly time slot evaluations of POSAS, which is Patient Observer Scar Assessment Score, where every month the physician and patient independently are asked questions and respond to the active versus placebo characteristics of the scar. That has been quantitatively scored. So POSAS is the pry primary 12 month end point and it is viewed as a subjective end point.

The 2D and 3D digital photography will measure the length, width, height and volume of the scar and I'm personally very, very interested in those hard data. I think that's what's going to give me comfort that we're seeing a signal. But we're not expecting to show statistical significance, to see statistical significance in these interim evaluations and POSAS 12 month remains the primary end point. As I have indicated in the past, our hands are tied relative to what we can say about these internal analyses because if we get out in front, we will breach an agreement we have the FDA regarding possibly biasing or prejudicing this POSAS subjective 12 month end point. So we have to find other ways to communicate to the market if we are encouraged and we will find those ways.

I thought to your point, I thought you said that based on interim data, that would be the indicator to the market, if you saw data that was not very good, you would say, well, that's enough, we'll stop and we'll have this orderly liquidation sooner than you've described.

If we see a safety problem, that's material, and we would announce that. Yes. And if we saw a safety problem, that would allow us to shut the study down. More than likely, what we'll hear if there is a signal or a trend of a positive nature, the statistician will simply say continue the study, I'm seeing a trend and that to us is very good news.

So by definition, is that not a communication to the market that you had described previously or do I recall this incorrectly?

I don't know how to answer your question. I believe we've been consistent in saying that we would not disclose interim results in press releases. We can't be quantitative, but we can take actions to tell our shareholders that we believe there is a commercial pathway. Such as adding a very luminary dermatologist to our Scientific Advisory Board. Such as formally changing the legal name of the Company from Orthologic to Capstone which we had not done to preserve cost. Such as possibly broadening our Board and bringing on another experienced CEO from a pharma background. Those are some of the activities that I think we could announce that would signal to the market that we're encouraged by the data we're seeing.

Okay.

Okay. Thank you very much.

And just one more thing. The mid-March meeting will do what?

The March meeting is not necessarily a meeting. It's to release our fourth quarter financial results.

You said something about some kind of presentation, though.

We may choose if we have any other announcements, we may choose have a conference call in mid-March. If we don't have anything else, we'll just do a press release and publish our financials for 2009.

I thought you said that there was going to be some doctors meeting. That's what I was --

Oh, oh, I'm sorry. Yes, there is. The American Academy of Dermatologists meets in early March in Miami and two of our investigators in the keloid study will be presenting a natural history of the physiology of keloid scarring, and will also be prominently featuring AZX-100 as a potential therapeutic. So it's good air time for us. But it's not anything specific about our current clinical trials.

Good luck with the -- good luck with the results. Thank you.

Thank you very much.

We'll take our next question from Michael Heaberg with Axiom Capital Management.

Jock, how you doing?

Great, Mike.

Good. We're pleased by the announcement you guys made earlier this morning. Thank you for that. I guess my question is that built into the assumption of $13 million roughly in cash burn this year, are certain other expectations which I would assume would include either success or not success with the interim look you have. In other words, if it's successful I've got to believe that it's going to be $13 million or more. If you were to go out and hire additional management or whatever, if the interim look you get from your statistician is very negative or if there's a safety issue that number would decline?

Yes, very artful question. The $13 million in guidance which I'm happy to go formal with right now has a little bit of room in it for some back end second half of the year success oriented projects. And I'll be specific. If we see a signal in the first half of the year, then we would probably initiate some longer term toxicology studies, repro tox and other large animal chronic tox studies that are pretty expensive, that we don't have to have from a regulatory standpoint until we begin a pivotal trial. If we saw a signal we would probably kick off those tox studies and bump up the burn rate just a little bit.

But I will tell you even in a success scenario, we don't intend to violate the $13 million guidance right now. It's possible for very good reasons. Good reasons that we would. For negative reasons, the burn rate could be obviously lower than that.

Great. Thank you.

Thank you again.

We'll take a follow-up question from Lloyd Simms with Simms Capital.

Could you just point to some other companies that may have done this similar put right transaction?

Lloyd, we're not aware of any that have done exactly what we have done. So we believe this is very novel and responsive in terms of today's corporate governance. There was a put right that I believe it was Theravans did with a corporate licensing option deal that they did with GSK two or three years ago but it really was in a very different context and gave GSK the right to acquire additional shares if certain things, did or did not happen. So I think we stand alone at this point.

I seen that a couple times in terms of a potential client but never in terms of a stockholder, so congratulations and best of luck in terms of moving in this direction. One other question. Have you changed your opinion at all in terms of placing one of the institutional investors on your Board?

Well, I think we've been pretty consistent about that, what our Board and nominating committee continue to believe is that if we were to expand the Board, and we have a very functional, capable, seasoned Board right now, that we would opt for a pharmaceutical executive who had very direct experience commercializing drugs. Okay?

Okay. Thank you very much.

Okay, thank you, Lloyd.

And at this time we have no further questions. I'd like to turn the call back over to Mr. Jock Holliman, Executive Chairman, for any additional or closing remarks.

Thank you very much for supporting Capstone and our work product here. We really are excited about AZX-100 and this team strongly believes that we're going to have a successful year. We're putting our shareholders first and I think we're novel in doing that. We look forward to hopefully not bumping our heads on the put because of very good news in the next 12 months. So we'll keep you posted and be as transparent in our communication as we can and look forward to the next call. Thanks very much.

That concludes today's conference. We thank you for your participation.