Capstone Holding Corp (CAPS) 2014 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 a 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. Sir, you may begin.

Thank you, operator. Thanks, everyone for tuning in. We have got a nice crowd this afternoon. If you will please go to our website, www.capstonephx.com. In the left-hand column there is an icon for investors if you will hit that, another page will open and then on that page you will see our deck presentation for today. And I think it is important that you see some of the charts and graphs.

And while you are doing that I will refer to our Safe Harbor requirement. We are making forward-looking statements today involving risks and uncertainties. All of these factors are discussed in detail in our form 10-K for the fiscal year end 12-31-13 and in other SEC documents.

So if you would turn to slide three which is corporate facts, I believe all of you on the call today are familiar with Capstone. We are traded OTC, symbol CAPS. We are a virtual biotech development company. We did a joint venture in 2012 with LipimetiX Development in Boston to develop a series of cardiovascular peptide therapeutic molecules. We contributed $6 million for 60% ownership of the JV and we have conducted preclinical Phase 1a and are continuing to Conduct phase 1b/2a trials at this point in time.

On slide four, our cash position as of the end of the quarter September 30, 2014, our cash balance was $3.1 million and there is a breakout in the slide as to which entity used what quantity of cash. So for the quarter, we used just about $1.1 million.

On slide five, a quick update on the qui tam lawsuit. The basic legal complaint, that's been with us 5.5 years is rent versus buy disclosure for bone stimulation devices sold by our predecessor legal entity, OrthoLogic, in the 1998 to 2003 timeframe. We sold that business in 2003. We learned of the lawsuit in 2009. The Department of Justice and US Government has not joined the complaint against OrthoLogic, which is very good. We had a status conference with the new judge in July to check progress and discovery. Discovery has occurred and we are vigorously defending our position and we are in dialogue right now with our co-defendants and with the other side. So I won't make any more specific statements about the lawsuit at this point in time.

On slide six, if you look at our major milestone chart, the last three are the ones that I will talk about today. In September 2014, we reported efficacy and safety data for a Phase 1a, and Dr. Goldberg will cover that data specifically in the second half of this deck. Also in September 2014, we filed a new formulation patent, a very broad patent for Apo E mimetic peptides that we believe will increase the safety and tolerability of the molecule.

In October 2014, we completed treatment of the Phase 1b/2a AEM-28 study and we are currently analyzing those data.

On slide seven, our target schedule is to report topline safety data and any pharmacodynamic biomarker signals from the Phase 1b/2a in December. And we believe that will occur in the first half of December.

In January 2015 assuming favorable clinical data, we plan to initiate strategic licensing and partnering discussions around the JPMorgan conference.

So generally speaking, we have hit our milestones substantially on time and on budget and we are delivering what we think are very meaningful data in the near term.

On slide eight, we will talk about our target indication. HoFH stands for homozygous familial hypercholesterolemia. It is a rare genetic disease, approximately 12,000 subjects worldwide. Homozygous means that both parents genetically bear offspring with no LDL receptors on the liver, so they do not have the natural ability to clear LDL cholesterol. The blood is often cream-colored and life-threatening cardiac events occur in the teens and 20s. And if you look at the little blood vial to the right that has been centrifuged and you can see an HoFH patient's blood separated between plasma and the white stuff, which is basically lipid fat, the historical therapy is called apheresis and it is a mechanical filtering of the fat from the blood via dialysis techniques every two weeks.

In early 2013 two new therapeutic drugs were approved, Juxtapid from Aegerion and KYNAMRO from Sanofi/Genzyme and with an origination at Isis. Both have substantial side effect toleration issues that may limit usage. So the market we believe is still underserved and it is quite frankly wide open for a drug that we plan to bring to market.

On slide nine, advantages of Apo E mimetics in HoFH, we are seeing a rapid one hour and dramatic lipid reduction in our studies. Our drug does not inhibit the natural regulatory pathways. Inhibition tends to create side effects and we don't intend to incur those same side effects typically when you follow a natural regulatory pathway. The Apo E protective effect on arterial walls lessens atheroma burden. And we are unaware of any other molecules in development for lipid reduction that also have this same beneficial effect on the artery wall. The mechanism allows for synergy with statins and PCSK9s for refractory cases. We have a new proprietary formulation which we will talk about and the molecule is low cost and easy to manufacture. Our delivery is IV and so the patient will have to participate in an infusion clinic or a hospital but current HoFH patients are used to that kind of therapy due to apheresis.

Slide 10, we believe there is an established clear and rapid path to regulatory approval following Aegerion's drug and Sanofi Genzyme's drug. The endpoints for orphan indication such as this are cholesterol reduction in this population. So we don't have to run these very large 10,000, 20,000 patient Phase 3 studies that target clinical outcomes.

Juxtapid was approved after a single Phase 3 study with 29 patients. And following the establishment of the early safety studies, AEM-28 or its analog AEM-28-02 might be approvable on Phase 2 and Phase 3 trials of under 100 patients with an estimated cost of somewhere around $10 million. So the bar to registration here is not terribly high if the drug works.

On slide 11, this is where I hand off the baton to Dr. Dennis Goldberg, who is President of LipimetiX development in Boston. Dennis, it is all yours.

Thanks, Jock. Thank you, everybody, for being on this afternoon. So I'm going to talk about the results from our Phase 1 study. We are very excited to be able to get the study done. As you see on the left column there what the inclusion/exclusion criteria was, these were normal volunteers, they had no history of heart disease. Key thing is they were fasted overnight and they remain fasted for two hours after the infusion and keep that in mind because you will see how that plays in the data. They had some -- we gave them some pre-medications because of the peptide drugs. We wanted to make sure we didn't get any reactions. These are kind of standard medications that you use first time you're putting this type peptide drug in people. This was a single ascending dose study so each subject got one dose. There were 36 subjects in all and six cohorts. The drug was administered IV over an hour time point and then we followed them in the clinic for 24 hours and then they were allowed to leave. We continued to take -- they continued to visit the clinic for drug samples, blood samples and we had a full two week follow-up on each subject.

In the middle you can see the dosing. We started out at a low dose for safety and went up by what they call half logs which is approximately 3.3 and then at the top end as we started to increase doses we decreased the rate at which the dose expanded, got up to 3.5 milligrams per kilogram.

In terms of the outcome, we had a generally acceptable safety profile. There were no systemic problems involved, there were some infusion site reactions and venous irritation at the highest dose and that we believe is off-site non-mechanism related reaction of peptide to the -- with the artery wall and that is part of the reason we have developed this new formulation we will talk about later.

We observed some really nice efficacy signals in this patient population. These were not patients with the kind of lipids that we really expected to see drop quickly. But nonetheless we do. And we also saw a dose-dependent response.

So if you look on the next slide 12, you actually see what we saw. You see VLDL cholesterol in the upper left-hand corner. That is the very low density cholesterol. It is loaded with both triglycerides and cholesterol. And what you see is a nice dose-dependent effect and you also see that we plateau pretty much around 3.5 milligrams per kilogram and when we show you the next curves, you'll see that the reason is that we effectively removed all the VLDL that was available.

On the upper right-hand side you see triglycerides. Triglycerides are carried in VLDL and it was expected that we would see a similar response and indeed we do. Again, dose-dependent response and you see that again it is beginning to plateau at the 3.5 milligram per kilogram dose.

The star, the asterisks above the columns indicate that those columns were statistically significantly different from the lower dose. And so we are very pleased with that as well especially with the small population that we had here.

If you look down on the bottom slide, bottom half of the slide, we are looking at total cholesterol and non-HDL cholesterol. And what you see in these patients is you don't see much of a decrease at the two lower doses but then you see a nice pop at the 3.5 milligram per kilogram in total and also non-HDL cholesterol. So the non-HDL includes VLDL and LDL. And the double asterisk indicates that those decreases at 3.5 milligrams per kilogram were statistically significant for both of the lower -- the two lower doses.

If you go on to the next slide, you see the effect of 3.5 milligram per kilogram dose on VLDL. Now I mention that these subjects were fasted and remained fasted for two hours after the infusion was finished, that is three hours in total. VLDL is the molecule secreted by the liver to carry triglycerides to the periphery. It also has cholesterol in it. And when you are not eating and when you are fasting, your VLDL levels will continue to drop as the body metabolizes the triglycerides and it. So when you look at the black line, the black squares you see that the triglyceride levels were dropping for a period of four hours and then they were allowed to eat and then in about eight hours you start to see triglycerides pop back up in those subjects.

What you see in the AEM-28 group is that by one hour we had removed 70% of the VLDL that was left in the blood and then it just stayed there. And even as they start to eat, it just never quite catches up, gets back up the same way that the placebo subjects did. And even going out for 48 hours even though they are now eating freely, you are still seeing that the difference is being sustained. That was really exciting data to us because there's just is not a whole lot of VLDL there and we weren't expecting to see those kind of drops in these subjects.

If you look over on the next slide, slide 14, these are triglycerides and I mentioned earlier that they pretty much track the VLDL and indeed they do. You see that remarkable drop in an hour. This is data that our co-PI down at the site in Australia looked at and said he'd never seen anything like this before. The only way you see these kind of changes is with LDL apheresis and it takes much longer to get it down like that.

And then the triglycerides again stay down completely for four hours and slowly began to come back up but never quite get back up to where they were in the placebo group.

So that is very encouraging data. We have not, as Jock mentioned, we have completed the dosing in the 1b/2a study. That study, that is still blinded. The data won't be unblinded until all of the audit -- monitoring and auditing is done on that so we don't know where that data is yet but we are really eager to see it based upon what we have seen in the 1a study.

If you go on to slide 15, we will talk a little bit about the analog. This is a new peptide that was invented by LipimetiX and the scientists at UAB. We filed a composition of matter patent in July of 2014 and the beauty of the composition matter patent is that it now gives us 21 years of fresh patent life. That is very important not only for the orphan drugs where we get some extended protection from the FDA but for larger indications that we will talk about in a little bit. So we are really pleased about this peptide. It appears to be more efficacious and better tolerated than AEM-28 in the mouse models that we have looked at and we are now beginning our preclinical studies with it to demonstrate indeed the maximum tolerated dose in an infusion model. And also we have a manufacturing program that has already begun. So we will have clinical material ready when we need to move into the IND enabling studies and clinical studies.

If you look on the next slide, this is a little bit of the data comparing AEM-28 to AEM-28-02. You look round one you see AEM-28. One of the remarkable things about this drug as you saw in the previous slide is its ability to drop cholesterol levels really rapidly. These animals have cholesterol around 600 and an hour later their cholesterol is around 200, six hours later it is under 200. If you look on the right side and top you see round five, that is AEM-28-02, again they start at 600 but now they are even down at six hours to about 150.

And if you notice on the right side, the 24-hour column with AEM-28-02, they are still around 400. They haven't come back to baseline whereas with AEM-28 they are coming up to a much higher level.

So we not only have a brand-new peptide that gives us 21 years but also looks more efficacious and better tolerated.

If you go on to the next slide, this talks about the new formulation, this is the LipimetiX invention. This was one of the things that we saw in the Phase 1 study was when we started to see this vein irritation, we knew that we were dose limited because of that. So we had to come up with a way that we could deal with that and we developed this formulation that protects the veins while -- without sacrificing any of the efficacy and that is very, very critical that we can now give this at higher doses and not lose any efficacy. And as I mentioned earlier, we are already working with a manufacturing group to provide us with a commercial scalable manufacturing process work. And this new formulation will also give us 21 years of new patent life and allow us now to expand the dose range so we can treat patients who have cholesterol levels of 600 like the mice that we showed in the last slide.

So there's two approaches that we are now taking on slide 18. Jock mentioned the familial hypercholesterolemia, HoFH, and that is our lead indication but there are a number of other orphan indications related to hyperlipidemia that have not been addressed very well. And those include primarily indications around hypertriglyceridemia and the inability to clear VLDL and VLDL remnants. And based on the data that we saw in our Phase 1, these are really nice targets for us. Again they are orphans as you see familial hyperchylomicronemia, which is Type 1a that is based on a deficiency with the enzyme that metabolized the triglycerides and that is about 300 patients in the US about one in a million. And you have 1b, which is a familial Apo C2 deficiency also prevents metabolism triglycerides in both chylomicrons and VLDL remnants. That also is about one and a million so you have another 300 patients.

Type 3 familial disbetalipoproteinemia is a very interesting indication. It is based on a defect in the Apo E binding domain and these patients wind up with very high levels of VLDL and remnants and it is about one in 10,000 patients that actually develop this and they become difficult to treat. That indication is growing with the increase in obesity and metabolic syndrome in this country. So this is a growing problem.

Types 4 and 5 familial refractory hypertriglyceridemia again, VLDL triglyceride production that does not metabolize. You have an addressable market of about 60,000. But when you get to these acute hypertriglyceridemic patients, they wind up with triglyceride levels of about 1000 to 2000, they wind up with pancreatitis, they are hospitalized and that is a really acute need to be able to stabilize these patients.

So we have a very nice portfolio of orphan indications that we can pursue based upon the data we have seen in our Phase 1 trial.

On slide 19, the other piece that is really nice with the new peptide, we are now able to talk about addressing these large studies that will require clinical outcomes to coronary syndrome which is your atherosclerosis target. There are 1.3 million in a year. This is a real problem in patients with diabetes and because they wind up with what is called beta VLDL and that is something that we address really well. Peripheral artery disease also a real problem in diabetics.

And then you're talking about the high risk metabolic syndrome patients which is developing in epidemic proportions in this country and there is very little out there that treats that. We really have nice opportunities but these will require outcome studies and AEM-28 puts us on the road to those large markets.

In summary on slide 20, the clinical study, the lead peptide showed a nice dose-dependent effect on non-HDL, VLDL and triglycerides. We observed about a 65% reduction in triglycerides in VLDL versus placebo within an hour of infusion in these fasted subjects. And we are just following that data and it really opens up nice markets for us. The regulatory strategy has been established by Juxtapid and KYNAMRO so we can follow that for homozygous FH and also for these other orphan indications. And because of the modest number of both homozygous FH and the other orphan indications, the studies for pivotal -- the pivotal studies do not require a large number of subjects.

In terms of manufacturing, the peptide both AEM-28 and AEM-28-02 are easy to make by [solace eight] synthesis. We have had it made by multiple sources. It is inexpensive and it is very stable. And we now have a new proprietary formulation which will add to our patent portfolio.

The composition of matter claims for AEM-28-02 extend our intellectual property protection from 2020 when it would expire for AEM-28 to 2035 for the new peptide, which is very important in terms of allowing clinical outcomes. And that is in parallel with the formulation patents which will also expire in 2035.

And finally commercially, formal pharmaco-economic analysis has not yet been undertaken but there is a lot of exciting opportunities here. Targeting the familial hypercholesterolemic and the other orphan indications will be our near-term projects and the larger indications of acute coronary syndrome, metabolic syndrome and diabetic dyslipidemias will be our longer-term projects.

That is the end of the presentation and I'll turn it back to Jock and we will open up for questions. Thank you.

Thank you, Dennis, great work and congratulations on the Phase 1a. This deck is a little deeper and a little more detailed than usual but we wanted everybody to feel our excitement and to understand very specifically the details of our development program.

So I will be happy to open the floor to questions at this point. Operator.

(Operator Instructions).

Operator, I see a question from [Denny Howell] if you could allow Denny to enter the queue please.

One moment. Okay, Denny, your line is open.

Denny, hello.

Jock, I just wanted to congratulate you and your team. This has been a fantastic report and I really appreciate all that you and the team are doing for all of us that are investors of Capstone. Thanks for that.

Well, that is a great vote of confidence. We sure appreciate it. The team is working hard. We are doing this on remarkably short money, the orphan indications help us deliver on a low capital basis. We think we potentially have a new and important class of cardiovascular drug that can bring benefit to a significant number of cardiovascular patients. The bigger numbers are obviously in the clinical outcome studies and we won't ever attempt to undertake studies of those magnitudes. But the orphan indications going after VLDL and triglycerides in particular, we are listening to the molecule, we are following the data and we are learning new things every day. So we remain excited and motivated and thank you for the positive feedback.

[Donald McNeil], private investor.

Hi. I am just curious what is going to happen to the common shareholder as money disappears?

Well there are numerous pathways to maintain value for the common shareholders. And most of us are significant common shareholders as well. So we are -- we have got or eye on the ball. We are initiating some discussions early in 2015 with potential strategic corporate partners. And we've said that we would test the market for monetizing the LipimetiX program after we completed the Phase 1b/2a study, and we are doing that. It is very possible that we could cut a deal, a joint development deal, a licensing deal that would provide funding and carry the program forward. And the other option is if the money markets are open to us, we could also go to the market and raise some money.

Our burn rate, our burn rate is extremely low and we are keeping it low. LipimetiX is a virtual operation with three PhDs in Boston in a very small office. And our operation for Capstone has two full-time employees and a handful of hourly consultants. So we are preserving the cash as best we can and our goal is the same as yours to create value for the comments.

And the strategy of getting footholds just by bringing in smaller -- going smaller patient populations with rarer problems, do you really think that will -- if it does well it will lead to ramping up to much larger populations of different patients? It seems to be the cheapest way to do it.

Yes, absolutely. The orphan pathways are the fastest way to registration and to revenue. Right now we are evaluating all options. We may continue to develop HoFH, we will have to raise some money to do that or partner with pharma to do that. But we are going to knock down one indication at a time and HoFH is a clearly defined regulatory clinical pathway. So I think you've stated our strategy very appropriately. Thank you.

Okay, well, thank you.

(Operator Instructions) [Stephen Penetti], private investor.

Hey, Jock, great job out there, appreciate all your efforts. I have a question, when do you think Wall Street will recognize the value that CAPS is creating?

We are scratching our heads today too. I think the qui tam lawsuit has a lot of hangover on the stock and until we get that resolved and again we are working very hard and very real time to resolve that. We do not believe that the Company had any culpability whatsoever and we have been named with every other company that participated in the bone growth stimulator device market in the early 2000s. So it is unfortunate and I think that is quite a hangover on the stock.

Phase 1a data is great. We did an unusual Phase 1a quite frankly because it was double blinded and placebo-controlled. We wanted to soak as much information out of a Phase 1a as we possibly could. And Dennis and his team and our chief medical officer, Randy Steer, who is on the phone with us, really did a great job on that study and I think on the 1b/2a.

So you really start getting a bit of recognition when you deliver 2a results because you are testing some patient populations in the disease state that you are targeting. And if we get the qui tam, if we are fortunate enough to get the qui tam resolved in some fashion and see some decent Phase 1b/2a data, we also have an IR program that we have kicked off in September, a digital IR program that I think is getting our name and story out. I am writing a Chairman's blog once a month trying to educate the market a little bit more about what we are doing.

So I think you attacked it on all fronts, Steve, but at the end of the day clinical data drives value and we have to produce clinical data. So that is my best answer and again many of us are significant shareholders along with you so we all have the same objective.

Okay, appreciate it. Thanks, Jock.

Okay, thanks for your question.

(Operator Instructions).

Okay, operator, let's wrap it up. Thank you.

You are welcome, sir. I will turn the call back over for closing remarks.

Very good. As Dennis indicated, we should be reporting the Phase 1b/2a data in December and barring any unexpected delays, it should be in the first half of December. And we are -- cross your fingers -- data drives outcomes and we will be talking to you very soon. Thanks very much for tuning in today.

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day.