Capstone Holding Corp (CAPS) 2012 Q3 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 question-and-answer session to follow. At this time for opening remarks I will turn the call over to Jock Holliman, Executive Chairman of Capstone.

Thank you and appreciate everyone joining this afternoon. We have a slide deck posted on the Capstone Therapeutics website, www.capstonethx.com, and if you will click on the investor icon on the left side of the homepage it will open to an investor section and our website will be -- the slide deck will be visible to you there.

I must start with safe harbor; statements in this presentation regarding our business that are not historical facts are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from predicted results. These risks include the factors discussed in our Form 10-K for the fiscal year ended December 31, 2011, and other documents we file with the US Securities and Exchange Commission.

We are on page 3 of the slide deck, which we have titled cash report. And I am pleased to tell you that we are managing our cash with continued discipline.

For accounting purposes, we are 60% owners of our JV LipimetiX Development LLC. And as a result we have to consolidate. So the GAAP statements that you will see in our September 30, 2012 10-Q, which is also posted on our website, will include consolidated results from LipimetiX. But we will, in a footnote, continue to break out cash consumption for Capstone independent and LipimetiX independently.

But as you can see, year-to-date Capstone on a standalone basis has consumed $1,399,000 in cash, $445,000 for the recently completed quarter. And of that $445,000, $139,000 were expenses related to our due diligence and legal closing costs associated with the LipimetiX JV. So you can see we have been managing cash very frugally on an internal basis.

LipimetiX is out of the blocks in good shape. There were some upfront costs, as anticipated, to order some drug material; to make some payments to the University of Alabama Birmingham Research Foundation regarding the intellectual property of the molecule, and some other closing costs on their part. So they burned a little over $1 million in cash in the 9/30 quarter. If you have any further questions on cash, our cash flow statement is included in the 9/30/12 10-Q.

Turning to page 4, another major topic is the Qui Tam lawsuit. No lawsuit discovery has been initiated. The duration of the discovery process remains uncertain.

We are awaiting the Department of Justice to reach some settlement agreements with the other group of defendants named in a fraud and kickback complaint. Capstone is not named in that complaint. There has been some action with a company called Orthofix and a proposed settlement is being reviewed by a Massachusetts court scheduled for a hearing in December of this year. So we remain in a timing unknown position relative to settlement or trial.

On page 5, these are the fundamentals of the LipimetiX JV from a business standpoint. Dennis Goldberg and I presented these in August. I will briefly cover them again.

Capstone has contributed $6 million for 60% ownership in the joint venture. It's a two-tranched funding approach and $3.3 million in cash has been paid into LipimetiX; $2.7 million will be released out of escrow to LipimetiX upon the achievement of an IND allowance, and we are assisting LipimetiX with accounting and fund management. $5 million of the $6 million has a preferential distribution right, meaning we get that money out first when and if there is a liquidity event.

LipimetiX has contributed the UAB license for current and future IP for 40% ownership.

The team in Boston is Dennis Goldberg, Philip Friden and Eric Morrel, all three PhDs operating under the contract name of Benu BioPharma to conduct the management of development of the molecule. And Randy Steer and I from Capstone and the three LipimetiX gents just named comprise the joint development committee. We make all operating decisions.

Our goal is to see this AEM 28 cholesterol LDL reduction molecule through preclinical studies, file the IND and get into humans to test both safety and efficacy, and I'll show you briefly our timeframe for doing that.

On page 6, this is a picture of the molecule. I don't think we have any science people on the call today, so I'll talk through this one very quickly. But if you will see the little red box on the left, 136 to 150, that is the active binding domain of a very large molecule -- Apolipoprotein E molecule.

And the scientists at UAB have done something very clever. They have snipped off that active binding sequence and then taken another part, the red box on the right, which is called an [anti-pathetic] helical domain, which increases the binding characteristics of this mimetic, this small molecule, to LDL. So it's very creative, it's very novel, and we are going to test it hard to see if it works.

Page 7, target indications. The orphan indication that we are principally going after is called homozygous familial hypercholesterolemia. These are people who are born without LDL receptor function, and they cannot control physiologically their cholesterol levels. In fact, these people have heart attacks at a very early age, and if you see blood samples from these patients, it is sometimes cream-colored. It's not even red, due to the high concentration of fat in the blood.

This is an approximate $200 million market. It may be larger than that, depending upon some reimbursement related issues. Severe refractory hypercholesterolemia are those people who are not responsive, particularly to the statin therapies that are prevalent in the market today. And it is a small population and may qualify for orphan designation as well.

The home run in this cholesterol category is acute coronary syndrome. And this really relates to the reduction of atherosclerosis, or plaque, that builds up on the arterial walls. And we have seen some indication of efficacy in this atherosclerotic reduction area by our molecule.

Turning to page 9, this is a chart that shows the consumption of our committed $6 million over a 27-month timeframe. Our current plan, and I hate to give timelines because there is in this business often some slippage, but we are pretty confident about our ability to enroll the patients. And we're pretty confident about our ability to execute the preclinical studies in a timely fashion.

So, into the early fourth quarter of 2014 is when we believe that we will have reportable results from a Phase IIa study. So we are doing the IND studies and the first animal gets dosed on a toxicity study, maximum tolerated dose study starting next week on November 13. We have drug material manufactured, and we will file INDs sometime around the middle of 2013, and then move into human clinical studies once IND allowance has been given by FDA.

We'll do a Phase I study testing single-dose in sequential fashion to naive hypercholesterolemic patients. We have a CRO picked out and it looks like they have good patient population to study. And then we'll move into a Phase Ib/IIa study which will really be the primary efficacy readout.

Something very important is that unlike a lot of cardiovascular studies that have to go into Phase III before they can prove clinical outcomes, these clinical outcomes are highly statistically powered. And I saw a Phase III study in cholesterol reduction that was just announced. It was 22,000 patients. We are not having to meet a clinical outcomes study that requires those kinds of -- that kind of power in a Phase III.

And under orphan designation, specifically as it related to the LDL receptor deficient class, we should see a much faster path. And FDA has already told us that instead of clinical outcomes, we have a simple blood-based biomarker test for LDL cholesterol reduction that will govern our early clinical trials. So we should have a black-and-white answer after the Phase IIa.

On page 10, this is some evidence of efficacy in the molecule -- in a study called the Watanabe rabbit model. These are rabbits that are deficient in LDL receptors, much like the human population that we are targeting. So this is a highly predictive test of the efficacy of the molecule in humans.

And we showed remarkable LDL reduction of cholesterol, 45% at 18 hours with quite a nice early spike. So this is a very important slide, and these results are nontypical of drugs tested today.

Slide number 11 deals with an earlier comment regarding our molecule's capability to reduce atherosclerosis. If you look at the top artery, stained with what's called Red O stain, it highlights the presence of a significant concentration of atherosclerotic lesions. And after treatment by the AAM molecule, cholesterol dropped and the fatty streaks and lesions dropped from 51% coverage to 80% coverage. So this is very nice. Again, it's preclinical, but it is evidence of some activity.

So in summary, our Apo E mimetic program, it's a novel molecule. It doesn't inhibit regulatory enzymes like some of the other competing molecules. There were two molecules that recently went before FDA advisory panel, mipomersen and lomitapide. And both were recommended for approval by these advisory panels, but there was considerable discussion about dose limiting toxicities and side effects of both molecules.

So if our molecule shows itself to be safe and efficacious, I think we'll have a very nice pathway to registration in commercial markets.

On page 13, I think I covered all the relevant issues here, with the exception that our orphan drug application has been filed, and these guys are on top of their game. Dennis and his partners are just doing a great job.

I was in Birmingham, Alabama the first two days of this week with Dennis, meeting with the science team at UAB, and the relationship is great. We are very pleased so far. The program is on budget, on schedule.

In summary on slide 14, we are working on three value programs -- the Apo E mimetic peptide AEM-28 program in LDL reduction that I mentioned, as well as two AZX100 hundred programs which are preclinical. We have received some pulmonary fibrosis results from Lovelace Respiratory Research in Albuquerque that are very encouraging. We even saw a survival difference in the animals that were treated in a radiation-induced fibrosis model over the control.

So we are showing some therapeutic benefit. Lovelace is excited, and the Harvard colleague who collaborates on our work is also excited. But I do want to caution that these are preclinical data and it is very difficult partner preclinical data. Nonetheless, we are going to go out with a nice package and test the market once again, because it's our view that this program should be funded by third-party money.

Additionally we are waiting on data from Barrow Neurological Hospital on a 60-rabbit model in spinal epidural fibrosis. The life section of the experiment is complete, and we are awaiting histology results which have been promised within the next week or two. So we are cautiously optimistic there. We think that AZX100 will validate an earlier rabbit model and show reduction of scar tissue around these fine surgeries.

We are continuing our virtual operation of 1.5 employees, Les Taeger, our CFO, and Barbara Dunford, our Executive Secretary, to preserve cash. Randy Steer and I our consultants to the Company, we've cut the board cut the Board from 6 to 3 and we're doing everything we can to make our cash last. As a result, we believe our cash resources will be adequate to reach the value milestones that we've outlined.

Thank you for your patience, and we are open to questions.

(Operator Instructions). There are no questions at this time.

I'll be happy to wrap up. I see many names on the board who followed us and been great, supportive shareholders. We are excited about LipimetiX. And if the molecule works well, I think we will have an opportunity to see some upside from that program, some liquidity events that we would project after the Phase IIa data.

Dennis Goldberg and his colleagues and our Board are very interested in monetizing after the Phase IIa. So that's our current plan. We are just going to be blocking and tackling.

We think it's good to hold a quarterly conference call and stay in touch with everybody. And, as always, feel free to call me. I think all of you have my contact information.

With that, we'll close the call today and thanks for listening in.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect.