Capstone Holding Corp (CAPS) 2010 Q2 法說會逐字稿

Good day, everyone and welcome to today's Capstone Therapeutics conference call. As a reminder, today's call is being recorded. Currently, the call is in listen-only mode. There will be a Q&A session to follow. At this time for opening remarks, I will turn the call over to Dana Shinbaum, Vice President, Business Development for Capstone.

Thank you and good day, everyone. The slide presentation accompanying today's teleconference can be found on the Capstone Therapeutics website at capstonethx.com. Click on the Investors section if you would please.

Before we begin, I call your attention on slide number 2 to our Safe Harbor statement. Today's discussion may contain forward-looking statements about the business prospects of Capstone Therapeutics. You may review a list and description of the risks associated with our business in Capstone's 10-K reports filed with the US SEC. Please also see our website, capstonethx.com for additional information. Here now is Jock Holliman, Executive Chairman of Capstone Therapeutics.

Thanks, Dana. Good morning, everybody. Please turn to slide 3. This is our corporate profile slide. Capstone is developing two novel peptide compounds for dermal scarring, pulmonary and vascular disease. We have a strong IP portfolio and a skilled staff in all biopharmaceutical disciplines.

Slide 4. AZX100, our lead molecule, represents a new drug class comprised of an HSP20 cargo and a protein transduction domain carrier. Molecular activity is not receptor-mediated on the cell surface. Rather the protein transduction domain delivers our active cargo intracellularly to the actin cytoskeleton target site. We believe this delivery mechanism creates fewer side effects as compared to other smooth muscle anti-fibrotic drugs, which are surface-mediated. The putative mechanism is filamentous actin disassembly creating an anti-fibrotic effect. Our mechanism work is quite advanced in this area.

Turn to slide 5 please. Based on the dual mechanism of AZX100 and anti-fibrosis and smooth muscle relaxation, targeted indications include dermal scarring and pulmonary disease.

Slide 6. The basis upon which we proceeded to Phase II with AZX100 in dermal scarring is presented on this slide. As we have mentioned during past presentations, Capstone's primary market research findings indicate that opinion leaders in dermatology believe the future of invasive surgery will require some form of prophylactic intervention for scar reduction. A drug serving this indication could become standard of care. We initiated our Phase II programs in the first quarter of 2009.

Slide 7. We intend to test whether AZX100 can effectively treat the full range of scarring indications. These indications extend from normal atrophic scars to hypertrophic to keloid scars. Keloids are among the most difficult to treat. They occur most often in pigmented skin. They can cause a loss of range of motion when located near a joint and they are visually prominent.

Slide 8 please. These are our current Phase IIa clinical programs. Now the first is a dermal scarring trial targeting reduction of trocar site scars following arthroscopic shoulder surgery. These can be both atrophic and hypertrophic scars.

The second clinical focus is keloid scarring. We are running two keloid trials targeting prevention of keloid scar reformation following surgical excision of the original scar.

Page 9 please. These programs per FDA guidelines have lengthy follow-up periods for both safety and efficacy. In addition to safety, study implants include objective validated assessments of the scar by both the physician and the subject. Endpoints also include a number of standardized objective scarring metrics evaluating data obtained via independent reads of two-dimensional and three-dimensional high-resolution digital photography.

Slide 10. We have conducted for internal purposes only an evaluation of data from these trials throughout the first half of 2010. The objectives were to further refine our measurement techniques in anticipation of potential future trials, as well as to examine safety and the quality of the data set. We have met our objectives on all three of the interim analyses taken to date.

Slide 11. The scarring market is large with 22.5 million surgical procedures performed annually in the US that can result in some form of scar. And there is presently no FDA approved drug for scar reduction. The potential market for AZX100 in dermal scarring could be comparable to the market for a drug such as Botox for wrinkles, which produced an estimated $1.3 billion in revenue for Allergan in 2009. AZX100 is targeted clinically to serve unmet medical need in keloid revision and general surgical scarring.

Slide 12. Assuming success, Capstone will seek a collaborative partner to commercialize the dermal scarring program. The mid-2007 transaction involving Shire and Renovo was consummated under different market conditions and only after a substantial Phase II clinical program connected by Renovo. However, we believe there is potential for a significant collaboration for AZX100 in dermal scarring depending upon the results of our ongoing clinical trials. Obviously, a total licensing deal in the $830 million range is indicative of a large and valuable market.

Slide 13, pulmonary fibrosis. AZX100 has been tested at Lovelace Respiratory Research Institute in standard preclinical models of pulmonary fibrosis. The molecule has shown statistically significant effectiveness in these challenging models. AZX100 is a legitimate preclinical drug candidate for this terminal pulmonary disease that kills 40,000 people in the US every year and is currently not served by any FDA approved therapeutics.

Slide 14. Our financial fact slide shows and we start the third quarter with $30 million in cash, no long-term debt. You can see our trading range at $0.60 to $1.20 and our market cap as of last Friday was $37 million.

Slide 15, cash management. Capstone has done a solid job of advancing its programs while minimizing use of cash. Since this management team took over in the second quarter 2006, we have been consistently favorable to guidance. 2009 was no exception. In 2010, we will continue to diligently manage our cash with usage estimated in the range of $13 million. We are favorable to budget on a year-to-date basis.

Slide 16. We received approval at the 2010 annual meeting of stockholders to amend our certificate of incorporation to provide each holder of Capstone 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 holders' common stock for cash at a formula-based price. A detailed description of the program is presented in our 2010 annual meeting proxy.

The current biotechnology model is to take increasing levels of risk on declining cash reserves. We are breaking this model. We believe our current clinical program affords AZX100 every opportunity to prove itself in the management of dermal scarring and we will succeed or not based on these trials. As we have repeatedly stated in past communications, this management team and Board is not interested in developing a drug that delivers only marginal clinical benefit. Should there be no compelling signal of AZX100 efficacy, we will execute a strategic transaction to merge our cash and NASDAQ listing into a promising platform or we will liquidate the Company. We are providing stockholders with the ultimate vote regarding how their assets are to be deployed. We believe this program is novel within the biotech community and we feel it is the right thing to do for our investors.

Slide 17 features a BioWorld article from February highlighting the downside investor protection from the put rights, as well as an interview with our shareholder, Biotechnology Value Fund, on the potential of Capstone's clinical programs in dermal scarring.

Slide number 18, our summary. We have in place a put right protection for the shareholders. We have a novel proprietary compound in a new class. We are addressing underserved indications in dermal scarring that we believe address a $1 billion plus annual revenue market. We have near-term clinical value inflection points in the fourth quarter of this year and first quarter of 2011. We're looking for proof of concept and safety from our Phase IIa clinical trials. Data dependent, we believe we have a very nice partnering story. That concludes the prepared comments. We are certainly open to questions at this point. Thank you.

(Operator Instructions). Michael Higgins, Rodman & Renshaw.

Good morning, guys and congratulations on your tight fiscal discipline again in the quarter.

Appreciate it. Thanks, Michael.

Just wanted to double-check on the primary endpoint of the studies that are coming up this fall. Can you review for us what the primary and secondary endpoints are again?

Indeed. They are listed on slide 9 of the PowerPoint. Safety, obviously, is first and foremost in everyone's mind. We have a subjective endpoint called POSAS, Patient and Observers Scar Assessment Scale, that is listed as the primary endpoint of this study in our protocol. We are looking for the right clinical benefit endpoint in conjunction with FDA and mutually agreed that this would be a good one to take a look at.

Please recall that these are Phase IIa studies and we haven't determined the final clinical benefit endpoint for registration studies yet. We are very interested in the objective three dimensional digital photography that uses $80,000 Canfield camera systems. These are the gold standard high-resolution systems. We are taking monthly pictures of height, length, volume and width. So most of the science-driven people and clinical people that we are talking to are most interested in this endpoint.

Additionally, we are taking two dimensional digital photos on a monthly basis and these will be reviewed on a blinded basis by our two independent dermatologists at the end of the study. This is a system called Visual Analog Scale and is also frequently used in a clinical utility context. Those are the primary endpoints.

And are all of these at 12-month basis?

Yes. We are 12 months in duration principally from a safety standpoint and the primary endpoint in the protocol is listed as POSAS at the 12-month endpoint. But once again, these are Phase IIa studies and we are looking for a meaningful efficacy signal from any of the monthly data sets. And we are taking data from day 42 post-surgery all the way through 12 months. So there are multiple bites at a win here. What we are most interested in is showing efficacy, proof of concept. Does our molecule have an effect, as well as safety?

And then in the safety endpoints, what is it that you are looking for? What is it that you are most interested in?

We personally are most interested in the three-dimensional digital photography because that is where the rubber meets the road in determining whether the treated scars are smaller than placebo.

Okay, fair enough. Thanks, guys.

Okay, thank you.

(Operator Instructions). Scott Lewis, Lewis Capital Management.

Good morning, Jock. What is going to determine when in the fourth quarter the results come out?

Well, we will have data from the 04 higher-dose keloid study in the next several weeks. We have actually locked the database as of late last week. So we are starting the analysis process right now.

We will decide on that as soon as we complete analysis and this is a pretty large beta set, so it is going to take some time and we might want to do some post hoc analysis as well. So I can't give you a hard date as to when we are going to disclose data.

Negative news will be straightforward. We would pump that out to you as soon as possible as that is material. But positive news may require us to wait for the lower dose 05 keloid study for statistical optimization. We are dealing with reasonably small cohorts. In the 04 study for instance, the original 60-patient target is now down to 52 active and evaluable and so the three arms of that study include placebo, 3 milligram and 10 milligram. So with a little bit of attrition, the drug is going to have to show remarkably robust performance for us to show statistical significance.

We do have an a priori agreement with the agency to pool on a statistical basis the lower dose and higher dose keloid studies. So for statistical optimization, we may make the decision that it makes more sense to accurately represent the performance of the molecule by reporting combined results. And right now, we are scheduled to have the lower dose keloid studies some time in the mid-November timeframe. So this could clearly be a Q4 event.

Okay, super. Thanks, Jock.

Okay, thanks a lot. Good question.

I am showing no more further questions in the queue. I'll turn it back to you.

Thank you, guys, for your belief in our Company. We believe in our molecule and we are very excited to be looking at some near-term clinical results. And you have our word. We will convey those to you just as soon as we can. Thanks for tuning in today. That is it from Phoenix.

Ladies and gentlemen, this does conclude today's conference. Thank you for your participation and I hope you have a wonderful day.