Capstone Holding Corp (CAPS) 2010 Q3 法說會逐字稿

Good day, everyone, and welcome to the Capstone Therapeutics earnings call.

(Operator Instructions)

There will be a Q&A session to follow. At this time Dana Shinbaum Vice President of Business Development for Capstone Therapeutics will make opening remarks.

Thank you and good morning. As for our standard practice of today's slides are available at www.capstonethx.com under the investor section on our website. Before we begin, I call your attention to our Safe Harbor statement on slide number two.

Today's discussion may contain forward-looking statements about 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 SEC. Please see also our website, www.capstonethx.com for additional information. For you I'll turn the call over to Jock Holliman, Executive Chairman.

Thanks, Dana. Good morning everyone. We are on slide three of our presentation deck for today, and I hope you all have pulled that up.

This is our corporate profile slide. We are 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 four, please.

AZ X 100 is a new drug class; it has a new novel mechanism of action. It is a combination molecule that includes a cargo of a heat shock protein 20 and a carrier in the form of a protein transduction domain that bypasses surface cell-mediated events and takes the cargo directly to the active cytoskeleton. Our putative mechanism of action is filamentous act and disassembly. We believe our delivery mechanism has the potential to offer fewer side effects than other surface-mediated smooth muscle and antifibrotic agents. Slide number five, please.

You are well aware by now we have directed our attention to dermal scarring as our primary clinical indication, and we are also pursuing idiopathic pulmonary fibrosis on a pre-clinical basis. Slide number six. This slide depicts the pre-clinical and early human clinical steps we've taken to advance the candidacy of drug. We have some very compelling and published mechanism work regarding inhibition of connective tissue growth factor and type I collagen and lowering the ratio of expression of fibroblast into the myofibroblasts, which contribute to the larger, bulkier scars. Our standard animal model, Siberian hamster, is the measure of the field and we did have a statistically significant event in that model. We've also completed, with a very nice safety profile, Phase Ia and Ib human studies and we saw a trend of activity in our Ib study.

On to slide seven. You have seen this slide before, but it bears remembering. There are different types of scars. And the ranges normal, or atrophic, on the left; the middle column is hypertrophic--red, raised, inflamed; and the right hand column is keloid, which extends beyond the range of the initial wound--tumor like, visually prominent, usually occurs in pigmented population--this is a real common scar and we are testing in our current trials the full range of these scars.

Slide number eight. This slide talks about our current clinical trials. The top one listed ASCAR-03, is a minimally invasive shoulder surgery study. 150 patients enrolled. We completed enrollment December of last year, and will begin the analysis of the study in the middle of December this year. I think our last scheduled clinical visit is around December 12.

We are testing two doses of our drug, three milligram and 10 milligram against saline placebo. We delivered two as demonstrations at nine and 21 days post-surgery. It is an elegantly design study because we have an intrapatient control. The third scar of the three scars made for this shoulder procedure remains a placebo. This study is double blinded and we are interesting in seeing what the drug does in normal scars.

Keloid will be reporting fairly quickly, and we are promised a report from our statistician before Thanksgiving. And so we will be announcing in coming weeks in December final results for the combined 04 and 05 study. We are statistically pooling per FDA protocol. It includes a low dose group of 0.3 and 1 milligrams as well as a higher dose cohort of three milligrams and 10 milligrams against independent controls, and we are dosing our drug at 21 and 42 days following excision surgery.

This really is a revisional surgical procedure. Our surgeons remove the scar and then dose the drug. What we are looking for is our treated scars to not reform as aggressively as the controls. Turn to page nine, please.

These programs per FDA guidelines have lengthy follow-up periods for both safety and efficacy. In addition to safety study endpoints include objective validated assessments of the scar by both the physician and the subject. We also include a number of standardized objective scarring metrics evaluating data obtained via independent reads of two-dimensional and three-dimensional high resolution photography. As you can see, there are several [bites] at the apple. We believe we have executed these studies well and we are anxious to see results. Page 10.

We did complete interim analysis through the spring and summer on 03, 04 and 05. We have announced those to the public. Because there is a subjective endpoint at 12 months, we could not be specific about quantitative data. What we did announce was we safety orderliness of the data set and our statistician encouraged us to continue each of the studies. As I indicated, final study results for the combined keloid study will be out in December, and for the 03 Trocar study, middle of Q1, 2011.

Please note that these current trials are phased to a probative human clinical studies to find a dose and schedule of administration that shows safety and a signal with efficacy. We have established multiple clinical endpoints in an attempt to identify that signal. Our goal would be to obtain a cluster of significantly significant responses of treated cohorts and one or more of these endpoints. Such data could indicate likely justification of a commercial drug candidate.

Page 11. This is a new slide we have been working on additional clinical utility endpoints. Why is a dermal scarring drug important? And why is it of interest to the medical community? We believe there are many potential clinical benefits to a safe, effective dermal scarring drug. We talked a lot about aesthetics, appearance is of greatest importance if a scar might be visually prominent. That serves a large market.

Strength of scar, a dermal scarring therapy that contributes to the formation of the stronger scar may result in fewer postsurgical complications, like the [issance] and wound splitting, which has an unusually high morbidity rate, particularly in laparotomy abdominal scars. Healing time. Therapy that accelerates healing also has obvious benefits in avoiding postsurgical risks. On a combined basis, if these benefits are proven to attribute to AZX 100 treatment, we will open the markets for use by significantly larger patient populations. Slide 12.

We discussed the market before. Large market--22.5 million surgical procedures performed annually in the US, with no FDA approved drug in place. Potential market for AZX 100 in dermal scarring could be analogous to the market for a drug such as Botox for wrinkles, which produced an estimated $1.3 billion in revenue for Allergan in 2009. AZX 100 is targeted clinically to serve unmet medical needs in keloid revision and general surgical scarring. Page 13.

Assuming success we'll move to seek a joint development partnership with a strategic. There are licensing comps which we have discussed before. In a different economic environment in 2007, Renovo did a very nice deal with Shire, totaling about $825 million of potential value.

More recently, on a more relevant metric, Bayer acquired a drug for jaw line fat reduction from Kythera for jawline fat reduction and paid $43 million in cash up front with $330 million in milestones. Slide 14.

Just a brief comment about pulmonary fibrosis. We have been testing our drug at Lovelace Respiratory Research Institute and standard pre-clinical models of pulmonary fibrosis and the molecule has shown statistical significance in reducing soluble collagen, a biomarker of scar formation, to near normal pre-insult levels. So we are getting an interesting signal, but a very, very tough indication of pursuit. Page 15.

Some financial metrics. We have continued to do well with our frugal operations and we are beginning this quarter, our September 30 balance sheet showed, $27.2 million in cash, well within guidance. No long-term debt. Our trading range is well established at $0.60 to $1.20 and our market cap as of yesterday was $37.5 million. We are trading, I think, this morning at $0.91, $0.92.

Page 16, our cash guidance slide. Of note, the right hand column, our actual, we have been favorable to guidance every year since this team took over. And we have achieved every major milestone set by our Board. In 2010, we projected $13 million of cash burn, and we are favorable to that number nicely on a year-to-date basis.

Page 17. The corporate governance item that our shareholders approved in May is unique. We are putting ourselves on performance timeline and trying to break the old biotech model of spending down to the last dollar. So as of June 30, 2011, our shareholders have a stockholder put-right, which will allow them to redeem their stock for cash on a formula-based price. It gives our shareholders, basically, the vote as to determining how our assets are deployed, and we think this is the right thing to do for our Company, perhaps the biotech industry, maybe for some other industries as well. We are really trying to put our shareholders first and be sensitive to the risks aspect of a biopharmaceutical model.

Page 18, our summary, the put-right protection is in place we have a novel proprietary drug in a new class. We are serving a large market in dermal scarring with really no approved therapeutics in place. We have very near-term clinical inflection points and will will be reporting data in a matter of weeks as opposed to months. We will have some data coming out in the middle of the first quarter of 2011. So, in summary, we are focused on the execution of our clinical programs in dermal scarring and we are planning for success. Happy to answer any questions you may have.

(Operator instructions) I'm showing we have a question from Michael Higgins with Rodman & Renshaw. You may begin.

Good morning, guys and thanks for taking my question.

Hi Mike.

Not allowed to go over here from my end of things, we are kind of like you were and others were kind of waiting hear for data. Just a question as I look through the slide deck. Remind me again on the [X US] opportunities, as well with AZX 100.

Market size in Europe is roughly equivalent to the US. Our epidemiology data suggests market size of roughly 20 million surgical procedures in Europe that can create some form of a scar. And rest of world is roughly equivalent to that same number. Know, it's a big market. We all know it's a big market.

All right. And I guess this may be too much for the call, but if in brief, if you could point to some FDA behavior in signs as to how to look at these indications, where they may or may not have weighed in on.

I can't paint the whole landscape, because were unaware of--obviously the discussions that Renovo or Excaliard might have had in terms of clinical trial design or consent with the agency. So, our knowledge is pretty limited about the landscape. But we have a great relationship with our reviewer, principally, and Randy Steer MD, PhD, our President, has spoken on numerous occasions to the head of the derm division.

They are being very cooperative and very supportive and I think they would like to see a safe, efficacious drive up here in this area. There is great clinical need for it. So, you know, full speed ahead. The derm division is fair and objective, according to whatever knowledge we have. So, we are optimistic about our relationship there.

And then one final one. To clarify a bit on the timing, looks like you'll see some data before Thanksgiving, if I hear you right, and you'll be in the month of December, providing 04, 05 results?

That is exactly correct. We'll get it out as quickly as we can. It's a big data set.

You are talking about keeper's. We are taking pictures, multiple pictures of each scar, doing POSAS assessment monthly. It is a significant data set that Dr. Larry Muntz, in Bethesda, Maryland has to work through. We expect him to be on time, he is usually on time and he has promised us Thanksgiving. We may have some additional post hoc analysis for him to do, depending upon what we see. It's traditional, as you know, to mine the data a little bit. But I would hope, by the middle of December, to be able to be very transparent and open with what we've seen.

Okay, just one last follow-up on that in terms of how you plan to go to the market with the information. A press release and a conference call? Or what's the outlook, do you think?

Exactly. We will issue a press release and have a concurrent conference call and we'll give you guys plenty of notice to get on the call.

Very good. Okay.

Sure appreciates your interest. Thanks for the questions.

Sure. No problem.

(Operator instructions)

Our next question comes from Matt Kaplan with Ladenburg. You may begin.

Hi, Jock. Good morning.

Good morning, Matt.

So, question with respect to you with data coming out soon, can you give us help to paint a little bit of a picture for us in terms of what to expect in terms of magnitude of changes? Or how to really interpret the data when it's announced from the 04, 05 studies? But maybe go through the 3-D photography and the 2-D (VAS)? What would be a positive outcome there?

Well, a positive outcome, as I indicated in presenting the slides, in our opinion, these are probative studies. These are our first human clinical efforts to find dose and schedule of administration. We only had a very slight signal in the 1b study. That was our only human data point. So, to a significant degree, where we assign doses to these studies based upon what we saw in animal models and they may or may not be correlative to the human physiology.

So you know, we are throwing educated darts at the wall, to be honest with you. And dose, obviously, is hard to find. Particularly in peptides, because peptides have some unusual dose response curves, from time to time. But timing of dose, timing of administration, is another significant variable. Because these scars are changing and healing and expressing different proteins and grow factors. So, what we plan to do is just be as transparent as we can.

We'll talk about each of the clinical endpoints, POSAS, two-dimensional, three-dimensional photography, safety. We really do believe we have the safe molecule. And we clearly did see some signals in the interim analysis. But whether or not duration of affect, I think is an issue were looking at. We definitely need to see some reformation of keloids in the control so we have some separation in theory from the treated scar. So it's a non trivial indication to conquer.

So Anyway, were excited, were anxious to get the final data, as you can expect. But were realistic. These are Phase 2a studies. If we were to see a statistical clustering of data in any one of the clinical endpoints that weve described around a single dose, then I think that would excite us and make us believe we have a commercial candidate. And the feedback we've gotten from the partnering community to date would support that.

And based on your prior comments and back up to, follow-up to Michael's question with respect to endpoints at FDA, is focused on. Do think it is more on the objective or subjective kind of POSAS or--?

Well, we, I'll use some slang term here. We're taking POSAS for a test drive with FDA. They like to see, as you know, a clinical endpoint that is--that indicates clinical utility to all parties. We don't know if POSAS works or not. I think it is a challenging endpoint because of the patient evaluation component.

I think our team is more confident that an expert physician is better able to judge and discern separation between two scars in healing and appearance, than a patient. And the patient really doesn't have a frame of reference. I mean, in most cases, they don't have a control scar to look at, so there really--there is no frame of reference for the patient. So we were a little concerned about the patient component of it.

And Renovo done something very, very clever in terms of their European trial. They have two primarily endpoints--and I hope I get this right and don't offend Renovo in the process, but I think it's very clever. They've taken the patient part of POSAS down to a secondary endpoint and are using expert physicians on what they call a global scar assessment scale. And they're also using quantitative photographic data reviewed by a panel of experts as a second primary endpoint. So, there is a precedent established with Renovo in Europe, and we think that might have relevance in a future discussion with FDA.

And the quantitative scale, would that kind of correlate with your 3-D digital photography?

As much as we understand it, yes. There definitely taking pictures. But we don't know what their camera systems are and we don't have a lot of specific information. But it could be 2-D, it could be 3-D, we just don't know.

Well, thanks a lot for taking my questions.

Well, sure appreciate you tuning in. Thanks, Matt.

Thank you, I'm showing no further questions in queue. I would know like to turn the conference back over to Jock Holliman.

No further comments. Thanks, everybody, for your interest. Were being miserly with our cash, were getting close to reporting some information to you and keep your fingers crossed, well be in touch shortly. Happy Thanksgiving.

Ladies and gentlemen, this concludes today's conference. Thanks for your participation, and have a wonderful day.