Crescent Biopharma Inc (CBIO) 2006 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the first-quarter 2006 Targacept Inc. earnings conference call. My name is Jackie and I will be your moderator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of today's conference. (Operator Instructions). As a reminder, this conference is being recorded.

Before we begin, the Company has asked me to read the following statement. Any statements made during this conference call, including answers to questions that may be asked about Targacept's expectations, plans and prospects, including without limitation, statements regarding the possible therapeutic benefits of TC-1734, AstraZeneca product number AZD3480, or any other product candidate. The progress, timing and scope of research and development in programs, including applicable clinical trials, regulatory filings and approvals for TC-1734, product number AZD3480, or any of our other product candidates in all other statements that are not purely historical in nature constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results, performance and experience may differ materially from those expressed or implied by such forward-looking statements as a result of various factors, including our significant accounting estimates and risks and uncertainties described under the heading Risk Factors in our registration statement on Form S-1, file number 333-131050, and in other filings that we make with the Securities and Exchange Commission. Such forward-looking statements speak only as of today and should not be relied upon as representing our views as of any date after today. We specifically disclaim any obligation to update any forward-looking statements, except as required by applicable law.

And now ladies and gentlemen, I would like to turn the presentation over to your host for today's call, Mr. Don de Bethizy, President and Chief Executive Officer. You may begin, sir.

Thank you, Jackie. Good afternoon ladies and gentlemen. I am Don de Bethizy, President and Chief Executive Officer of Targacept. With me on this call is Alan Musso, Targacept's Chief Financial Officer. During this call, I will provide an update on Targacept's product development programs and business activities and then Alan will review our financial results for the first quarter of 2006, which we announced earlier today.

Let me start off by welcoming you to our first conference call. I'm sure I've met many of you during our roadshow and I'm looking forward to keeping you updated on our progress.

The first part of 2006 has been a very exciting time for Targacept as we have accomplished several key milestones, including the launch of a major cognition focused collaboration with AstraZeneca. We're delighted to have entered into our collaboration agreement with AstraZeneca at the end of 2005. This collaboration provides us with a highly motivated world-class business partner, significant downstream value in the form of milestones and royalties and the transferor of future TC-1734 development costs that enables us to fund the development of the rest of our product pipeline.

Following the Hart-Scott-Rodino clearance process, our agreement became effective in January and we received an initial fee of $10 million from AstraZeneca in February. As you are probably all aware, the collaboration includes the development and commercialization of TC-1734 to treat Alzheimer's disease, cognitive deficits in schizophrenia and other cognitive disorders, as well as a multiyear preclinical research collaboration designed to discover backup and follow-on compounds.

One of the reasons we were attracted to AstraZeneca was its stated commitment to developing innovative therapies in this area of unmet need. True to this point, AstraZeneca has moved forward with the additional safety and product characterization studies of 1734 that we have previously disclosed. We expect AstraZeneca to complete these studies in the early part of 2007, which sets up the next milestone under the agreement, a $20 million payment that is triggered by an AstraZeneca decision to conduct Phase II clinical development of TC-1734. We're very pleased with the rapport that has been established with our AstraZeneca colleagues in a relatively short time and are very excited with the progress to date in the collaboration.

Now in further regard to TC-1734, we recently announced favorable results from our Phase II clinical trial of the compound in memory-impaired older subjects. This trial was ongoing when we formed our collaboration with AstraZeneca and we completed it independently. The double-blind placebo-controlled parallel-dose trial included 133 subjects classified with age-associated memory impairment, which is referred to as AAMI, a condition that can occur with normal aging. To qualify for enrollment in this study, subjects were between the ages of 50 and 80, reported memory impairment without evidence of medical cause and scored at least one standard deviation below the mean established for young adults on a standardized test. Each subject received 25 or 50 milligram doses of TC-1734, or placebo, once daily for 16 weeks. We used a computerized test battery developed by Cognitive Drug Research, or CDR, and a subject global impression scale to assess cognitive function. There were three coprimary endpoints -- change from baseline on the power of attention and episodic memory factors from the CDR test battery and the composite score on the subject global impression scale in each case, as compared to placebo at the end of the 16-week dosing period. We were very pleased to achieve statistical significant results in favor of TC-1734 in the 50 milligram dose groups for all three coprimary endpoints on both an intent to treat and a protocol basis. In addition, 1734 was generally well tolerated with no clinically significant differences among the two 1734 dose groups and the placebo group in the incident of adverse events.

Now let me turn to our other novel compound created using Pentad that's in the clinic -- TC-2696 -- our product candidate for acute postoperative pain. Our Phase I multiple rising dose trial of 2696 remains in progress. In this trial, we were using a surrogate measure to provide an indication of the potential efficacy of the compound as a treatment for pain. In the completed 25 and 50 milligram dose groups of the trial, we observed a consistent positive trend in a surrogate measure of pain relief. We expect to resume dosing in this trial this summer and assuming favorable results, to file an IND to initiate Phase II clinical development in the fourth quarter of 2006.

Now let's turn to our preclinical portfolio. We are enthused about the profile of TC-2216, which continues to be on track for an IND or a CTA filing in the second half of 2006. In preclinical studies, this product candidate has shown anxiety-relieving effects as well as a positive antidepressant effect comparable to commonly used treatments for depression, but with greater potency. Based on our preclinical findings, showing that this product modulates the release of dopamine and reduces weight gain, we're also considering the potential of this product candidate for obesity or smoking cessation.

We have also made significant progress with our alpha 7 NNR research program and have selected TC-5619 as a product candidate. We believe this compound's ability to selectively target the alpha 7 NNR suggests promise for indications such as schizophrenia, cognitive impairment and inflammation.

Now another significant milestone for us was the April 2006 completion of our initial public offering in which we raised net proceeds of approximately $40.7 million in a challenging life sciences market. We are delighted to welcome new high-caliber investors in the public market and are happy to have many of you with us today.

I would also like to take this time to extend our appreciation to the investors that supported us as a private company. We're fortunate to have been well capitalized by an experienced investor base without whose backing we could not have achieved our milestones to date. We appreciate all of your support.

Now before I turn things over to Alan, I would like to mention an exciting development in the NNR space. As many of you no doubt know, the FDA recently approved of Pfizer's product Verenicline, branded as Champix as an aid to smoking cessation treatment. Verenicline was designed specifically to act on NNRs. Its approval provides further validation of the promise of NNR-based therapeutics. Having established ourselves as a leader in NNR research over the past 20-plus years, we believe that we are uniquely positioned to capitalize on this promise. We use our proprietary drug design platform known as Pentad to rationally design product candidates that selectively target specific NNR sub-types to achieve therapeutic effects and limit side effects.

Now I would like to turn the call over to Alan Musso, our Chief Financial Officer, who will briefly review the first quarter financial results. Alan?

Thank you, Don. Let me first review to you our financial results for the first quarter of 2006 and then discuss our financial guidance.

Our actual financial results for the first quarter of 2006 were in line with our expectations. We continue to be financially prudent in managing the business while making the necessary investments to advance our product candidates.

During the first quarter of 2006, our net loss was $5.2 million. This compares to a net loss of $7.4 million for the first quarter period of 2005. Net loss for both periods included non-cash stock-based compensation expense as a result of our adoption of Statement of Financial Accounting Standards No. 123, revised, as of the beginning of 2005. We recorded non-cash stock-based compensation expense of $127,000 for the 2006 period and $358,000 for the 2005 period.

The net loss incurred in the first quarter of 2005 period also included a transaction charge of $1.6 million for expenses related to a planned public offering that was not completed.

Our operating revenues were $606,000 for the first quarter of 2006 as compared $303,000 in the first quarter of 2005. This increase was principally due to $271,000 in revenue recognized in the 2006 period from our AstraZeneca collaboration. Our research and development expenses totaled $4.8 million for the first quarter of 2006 compared to $5.1 million for the first quarter of 2005. Research and development expenses for the 2006 period reflected a decrease of $1.1 million in spending related to TC-1734 as a result of the assumption by AstraZeneca of all TC-1734 development costs and this spending reduction was partially offset by increased spending of $737,000 to advance our product candidate TC-2216 as well as additional costs that we incurred in connection with our preclinical research activities under the AstraZeneca collaboration agreement.

General and administrative expenses totaled $1.2 million for the first quarter of 2006, which is consistent with the first quarter of 2005. On March 31, 2006, our cash and cash equivalents totaled $27.2 million. As Don mentioned, following the end of the first quarter, we raised net proceeds of approximately $40.7 million in our April 2006 initial public stock offering [siding] us with a March 31, 2006 cash balance of $68 million on a pro forma basis.

Turning now to our financial guidance, based on our current operating plan, the expected timing and cost of clinical trials and other product development activities we expect that our net cash used in operating activities will be in the range of 18 to $22 million over the nine-month period from April through December 2006 and we expect to end the 2006 year with between 46 and $50 million in cash, cash equivalents and marketable securities.

And now let me turn the call back over to Don.

Thank you Alan. Let me thank you all for joining us today. We're very pleased with our achievements in the first part of 2006 and look forward to the remainder of the year. We would be happy now to take any questions that you may have.

(Operator Instructions). Jennifer Chao, Deutsche Bank.

Great, thanks a lot and congratulations again on the recent IPO. Just a couple of questions. First, what can you tell us, Don, about your most recent dialogue with AstraZeneca with respect to the status of the ongoing safety and talks process? And do these recent conversations reinforce your outlook as to an eventual opt-in, or is it neutral? Have you gotten anymore additional reason to be more confident about the outlook?

Jen, we have had a series of meetings with AstraZeneca. We started off in February with some excellent team building exercises that brought the development committee and the research committee together, built the relationships that are essential for success. And then very recently, the teams met here at (indiscernible) and they continue to be working. And the conclusion from all of that is that we're right on track for the first quarter of '07 as we previously disclosed.

Okay. And do you actually have AstraZeneca's specific protocols on exactly what kinds of studies they're doing, and do you get feedback in a real-time format?

We do. We have set up a system where we essentially have an Internet site that allows us -- that's encrypted -- that allows us to interact on a real-time basis with our colleagues at AstraZeneca. And there is -- and the importance of building research teams, as you know, is to build the relationships. And there has been a real effort on both sides to build those relationships, share the appropriate materials, seek the expertise, whether they reside at Targacept or at AstraZeneca. We see no evidence of an attitude that the bigger company has more influence. We have people here, for example, Geoffrey Dunbar, who has over 25 years of experience in big pharma, and he is being relied upon as they develop these protocols. So the answer is, yes, we are very involved in the protocol's development. We know what is being done. We can apply our deep scientific knowledge to the design of those protocols. So we are very excited about the design of the trials. We are excited about the progress and the execution and we are very pleased that things are on track.

So just to get more granularity on one point, in the event there is any kind of a safety signal issue or anything that looks potentially negative, I'm presuming that that's potentially material disclosure from your side, even before a formal opt-in if it would substantially increase the risk of a favorable outcome on the opt-in.

I think we'll go through a normal process that you go through as you evaluate studies like these, is that there will be a scientific evaluation process. In some cases, things are blinded, so you're not going to know whether things are drug-related or not. But obviously there will be a dialogue with our counsel and anything that is material to Targacept that will be reportable under SEC deadlines, we will be reporting on.

Two quick follow-ups and I'll pass it on. What are Targacept's plans for increasing some of the disease focus expertise within the Company? Are you planning on bringing in more experts that will specifically that have a background of getting drugs approved in the pain/anxiety/depression space?

Historically what we have done is, as you know, we have developed a core competency now in cognition with the staff that we have onboard, but we're very fortunate to have hired Geoffrey Dunbar and his staff because we have -- because Jeffrey Dunbar developed Paxil as well as [Requip], (indiscernible) and [Ramiron]. So he has experience in schizophrenia, he has experience in depression; he has experience in anxiety in addition to this cognition experience that we have developed over the last few years. And then on the pain side, we have one of the world's leading pain experts here at Wake Forest Medical School, [Jim Eisenoff], who has been actively involved with us and we always put together a thought leader team that works closely with us in these indications. And so at this point, at this early stage in the development as we just move out of Phase I and into Phase II, we believe that that structure will work well for us. Now if we have success and 2696 for instance in pain becomes a leading clinical development candidate for us, then I think at that time, we will continue to add infrastructure around that product.

Great. I will pass it forward. Thanks a lot.

Terence Flynn, Lazard Capital Markets.

Thank you for taking the question and I just wanted to extend my congratulations as well on the IPO. I have three questions. First, I was just wondering if you could provide us with a benchmark for the approximate 10-unit improvement in episodic memory that you guys reported for Phase II-B AAMI trial?

We just went through a process here of looking at that, and we have been able to get some data from CDR, from the cognizant drug research group who have put this test battery together. And what I would like to is just -- and I have looked at those -- it's a little soft in terms of the benchmarks. So what we're going to do is, we're writing the manuscript up, we're submitting the paper to a journal. And in the discussion section, we will be doing a very rigorous evaluation of putting that into context. There's a limited amount of published information around the episodic memory endpoint. So I would just say, let's just wait on that until we get the manuscript out there. And when we get the manuscript submitted and accepted, we will be able to put that into better content.

Okay, great. Thanks. Next question, I think [Memory] has encountered some enrollment difficulties recently in a Phase II-A Alzheimer's trial that they're running for their calcium channel modulator. And I think this was due to the monotherapy design of that trial. And maybe you guys could comment on how this might affect the design of your and AstraZeneca's Phase II-B Alzheimer's trial for 1734?

One thing I'd like to ask is, do you know whether there is a placebo-controlled trial?

I don't know off the top of my head.

Just to bring that -- that's an important issue. As you do a monotherapy today, and depending on at what stage of Alzheimer's you're doing it, and there is concern, and it seems to be somewhat greater concern in Europe around the use of a placebo in those trials because most people are in mild to moderate are already on therapy. So you could run into recruitment problems if you insisted on a placebo-controlled trial and [we're] trying to do a mild to moderate trial. We have been interacting of course with the thought leaders in the sites when we did this AMI trial; those same 16 sites also see Alzheimer's patients. So we have been engaged in this issue now for a couple of years. We're working closely with AstraZeneca on how best to approach that and we'll be reporting that out as we get closer to designing those trials and getting the protocol. But we are anticipating that we will have a reasonable recruitment rate because we do have these 16 sites. I don't know which ones will qualify for the A/D portion in trials, but we're optimistic that that should lead to a relatively reasonable recruitment rate for us.

Okay, great. And last just a modeling question. I was wondering if you could tell us what Inversine sales were for the first quarter?

The sales in the first quarter were about $177,000.

Okay, thank you very much. That's it.

(Operator Instructions). Greg Wade, Pacific Growth Equities.

Hi, good afternoon gentlemen and let me extend my congratulations as well. I was wondering with respect to 2696 if you could shed a little more light on anything you've learned with respect to the differential metabolism of the drug and whether or not there's backup [pharmacophores] that might be potentially promoted into the clinic for this indication?

We have -- as you know, we stopped the trial after the first few subjects at 100 milligrams. We were seeing some toxicity that we had not seen in the single rising dose trial with a single dose of 2696 at 100 milligrams. So our hypothesis was that we were seeing some variation in metabolism of the compound and we were getting higher plasma concentration. We have confirmed that we have higher plasma concentrations in the individuals showing the toxicity. And so we went back and genotyped the subjects and found that we did have a variation in the incidents of the [cytochrome] [P452-D6]. So it's consistent with our hypothesis. We're now putting those data together, we're going forward to the ethics committee, the institutional review board, to get approval to now go into the 100 milligram dose group using the intermediate metabolizers and excluding the four metabolizers. So that is moving forward and we expect to stay on track to move that compound into a Phase II trial in fourth quarter of '06.

And the potential status of any backups?

We have additional compounds in our pipeline. We have not focused lately on a backup program for 2696. Our strategy has been to focus our energies around alpha 7. And also now, we are of course actively engaged in alpha 4 beta 2 with AstraZeneca. And after we get Phase II clinical results on 2696 and we look at partnering opportunities, we may invest into a backup program on 2696. But at this time, we don't have an active backup program going on for 2696.

I might switch gears to 1734. It was obvious from the preclinical work that there has been some neruoprotective effects for this agent. I was just wondering where we might see publication or presentation of a more formal analysis review of these results in the upcoming future? Thank you.

We have -- we don't have any immediate plans to publish the preclinical work on the neuroprotection, but we are working now to develop a plan to expand that preclinical testing, and that is being worked on with AstraZeneca and we will be reporting out when we get a little bit further along with that. And my expectation is that we will have data coming out of that; that will form the basis for some sort of presentation. So let's just reserve that for another quarter and we'll get back to it.

Thanks for taking my questions.

Mike Jackson, Winston-Salem Journal.

I have on quick question. You mentioned that the net loss in the first quarter of 2005 was 7.4 million, now it's 5.2 million. So it seems to have sort of risen a little bit and I'm wondering if there's anything you can attribute to that improvement?

Yes. The net loss in the first quarter of '06 was 5.2 million versus the 7.6 million. And I think the important thing to note was that, as I mentioned, there was a transaction charge in the first quarter of 2005 which is a $1.6 million charge that's really -- if you eliminate that, brings you to a place that's more comparable. But we had an offload of expenses with the AstraZeneca collaboration on 1734 and then we've been carefully managing our expenses. So it's a combination of those and we also had a pickup of revenues of about $300,00 in the first quarter of '06 versus '05.

From sales of Inversine, I'm guessing?

No, from the AstraZeneca collaboration [primarily].

What were the offload of expenses?

All TC-1734 development costs after collaboration agreement have been assumed by AstraZeneca, and in the first quarter of 2005, those costs amounted to $1.1 million.

Got it. Thank you very much.

At this time, you have no further questions so I'll turn it back to management for closing comments.

Well I want to thank everybody. This was our first call and we are very pleased to be a public company now and we're looking forward to executing our plan and staying focused on what we have control over, which is the development of our excellent portfolio. So thank you very much for joining us.

Thank you ladies and gentlemen for your participation in today's presentation. This does conclude today's conference. You may now disconnect and have a wonderful day.