Crescent Biopharma Inc (CBIO) 2006 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q2 2006 Targacept Inc. Earnings Conference Call. My name is Kelly, and I will be your coordinator for today.

[OPERATOR INSTRUCTIONS]

I would now like to turn your presentation over to your host for today's call, Mr. Alan Musso, Chief Financial Officer. Please proceed, sir.

Thank you, Kelly. I just wanted to start off this call by reminding you that we will be making forward looking statements, and that any statements made during this conference call, including answers given to questions that may be asked that are not purely historical in nature, including without limitation, statements regarding the timing for completion of additional safety and product characterization studies of TC-1734 conducted by AstraZeneca.

A subsequent decision by AstraZeneca related to initiated Phase II clinical trial of TC-1734. The possible therapeutic benefit of any of our product candidates. The progress, timing and scope of research and development programs and related regulatory filings and clinical trials, 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 important factors including our credible accounting policies, and risks and uncertainties described under the heading, "Risk Factors" in our most recently filed quarterly report on form 10-Q, 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 statement, except as required by applicable law.

And now, let me turn the call over to our CEO, Don deBethizy.

Thank you, Alan. Good afternoon, ladies and gentlemen, and welcome to Targacept's Second Quarter 2006 Conference Call. I am Don deBethizy, President and Chief Executive Officer. And as you know, 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 second quarter of 2006, which we have just released. Now, let me begin with our lead product candidate, TC-1734 and our collaboration with AstraZeneca.

As you know, our agreement with AstraZeneca became effective in January. Since then, AstraZeneca has progressed additional safety and product characterization studies on TC-1734, which it refers to as AZD-3480. We were very pleased with Dr. Ihor Rak, AstraZeneca's Vice President for Clinical Neuroscience showcased TC-1734 during AstraZeneca's annual business review in June.

In his presentation, Dr. Roth commented that this product candidate continues to show great promise as a treatment for cognitive dysfunction. He also noted, that AstraZeneca's intent to develop this compound for its first indications in Alzheimer's disease and cognitive deficits in schizophrenia. An AstraZeneca determination to conduct Phase II clinical development of TC-1734, following completion of its safety and product characterization studies, would trigger a $20 million milestone payment to us under the agreement.

We continue to expect that AstraZeneca will complete it's studies in time, to enable that decision in the first quarter of 2007. The sunset date for this decision under our agreement is April 20, 2007. We and AstraZeneca are also conducting a preclinical research collaboration, designed to discover back up and follow on compounds to TC-1734. We remain confident that the research will yield additional novel product candidates.

We continue to be delighted with the complimentary experience and expertise of our AstraZeneca colleagues, and are excited by the progress of the collaboration. Now let me turn to TC-2696, our other novel product candidate in the clinic. As previously disclosed, we temporarily suspended a Phase I multiple rising dose clinical trial of 2696, due to its unexpected side effects in one of the dose scripts.

Based on metabolic profiling and evaluation that we have since conducted, we believe the genetic differences in the primary metabolic pathway of this compound, may have played a key role in the side effects we had reserved. We resume the trial earlier this month, enrolling only those subjects who were efficient metabolizers through this pathway, and expect to initiate a Phase II clinical trial in molar extraction patients by the end of the year.

We have selected molar extraction and acute pain indication for our initial proof of concept trial for the TC-2696. However, based on this compound's preclinical profile, we believe that it could potentially have application in various classes of pain. This provides us with the opportunity to consider further development of TC-2696 for other analgesic applications, in addition to, or instead of acute post operative pain.

Now, in addition to TC-1734 and 2696, we also as you know have two other pentab generated pre clinical product candidates that we are especially excited about, TC-2216 and TC-5619. 2216 is a novel small molecule that we are developing initially as a treatment for depression and anxiety disorders. We plan to initiate clinical development of this product candidate by the end of the year. 5619 is the lead product candidate in our alpha 7 NNR program.

We believe this compound's ability to selectively target the alpha 7 NNR suggests promise for a number of potential implications including schizophrenia, cognitive impairment and inflammation. We expect 5619 to be ready to enter the clinic in the first half of 2007. And now, let's move onto mecamylamine hydrochloride. We anticipate that the date from our Phase II trial of mecamylamine as an add therapy for depression will be available in the fourth quarter.

We look forward to valuable insights and a better understanding of the NNR activity in this treatment resistant depression clinical setting, that we expect to apply in the development planning for TC-2216. Now, let's move onto some other news. Beyond our product pipeline, we again demonstrated our leadership position in the NNR space by beginning to collaborate with the California Institute of Technology, and the University of Colorado at Boulder on innovative research on NNR based approaches to smoking cessation.

We anticipate that this research which is being supported by a grant from the National Institute on Drug Abuse, part of the National Institutes of Health, should augment our active smoking cessation program, the goal of which is to advance a best in class product. Before I turn it over to Alan, I would like to briefly mention that Targacept received the "Deal of the Year" award for public companies, from the North Carolina Council for Entrepreneurial Development in recognition of our IPO, [and] our collaboration with AstraZeneca. It's always gratifying to receive such meaningful acknowledgement of our progress.

Now I'd like to turn the call over to Alan Musso, our Chief Financial Officer, who will briefly review the second quarter financial results.

Thank you, Don. Let me now review with you our financial results for the second quarter of 2006. During the second quarter of 2006, our net loss was $4.6 million., this compares to a net loss of 8.1 million for the second quarter of 2005. The net loss for both of these periods included non-cash stock-based compensation expense, as a result of our adoption of statement of financial accounting standards number 123R as of the beginning of 2005.

We recorded non cash stock based compensation expense of 158,000 for the 2006 period, and 107,000 for the 2005 period. Our revenue was 589,000 for the second quarter of 2006, compared with 300,000 in the second quarter of 2005. This increase was principally due to 313,000 in revenue recognized in the 2006 period under, our collaboration agreement with AstraZeneca.

Our research and development expenses totaled 4.6 million for the second quarter of 2006, compared to 7.3 million for the second quarter of 2005. Research and development expenses for the 2006 period reflected the decrease of 2.3 million in spending related to TC-1734, as a result of the assumption by AstraZeneca of all development costs for this compound.

We also had a decrease of 561,000 in spending on TC-2696, due to the temporary suspension of the ongoing Phase I clinical trial of that product candidate. These expense reductions were partially offset by increased spending of 484,000 for costs incurred for our preclinical product candidate TC-2216 and TC-5619, which are both advancing towards the initiation of clinical trials, as well as additional costs that we incurred in connection with our pre clinical research activities under the AstraZeneca agreement.

General and administrative expenses totaled 1.3 million for the second quarter of 2006, which is consistent with the second quarter of 2005. Turning now to our cash position. At June 30, 2006, we had 63.5 million in cash, cash equivalents and short term investments, as compared to 27.2 million in March 31, 2006. This increase reflects the receipt of net proceeds of approximately 40.8 million from our initial public stock offering, which we completed in April 2006. One other item that I'd like to mention is, that in the second quarter we secured 2 million of additional borrowing capacity that is available to finance equipment purchases.

The terms provide that draws may be made for 100% of the equipment costs, with repayments due in equal monthly installments over a 48 month term. The interest rate will be set at time of the draw, and will approximate 2.5 percentage points above the hypothetical four-year T-bill rate. There are no stock warrants or owners financial covenants for this facility. We are pleased to have been able to secure assets to this capital on these terms.

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

Thank you, Alan. Overall, I am very pleased with our business performance, and the progress that we have made in the first half of 2006. And we look forward to continued strong execution of our business goals during the remainder of the year. Thank you again, for joining us on today's call, and we would be happy to take any questions you may have.

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And your first question comes from Bret Holley of CIBC World Markets.

Hi, Don and Alan. How are you?

Good Bret, how are you?

Good. I've got a question on the 2696 program. I guess, I'd like to get a little bit more background on the genetic differences that you saw, that were responsible for the side effects. And, I guess the question that I have is that, are there good examples of those who have been [taken forward] with an acknowledged liability in different metabolism, and that you're going to have to select for efficient metabolizers really henceforward in the clinical program?

Let me take the second part of that question first. There are between -- depending on how you'd count the drugs there are about 20% of drugs on the market today, that are metabolized by cytochrome P450-2D6. So this is a common isozyme of cytochrome P450. We encounter - so, it's not unusual to encounter that. Your first part of the question is -- so it is cytochrome P450-2D6, that's where we see polymorphism, it is the principal path of metabolism for 2696. And we will be -- in order to push the dose up, we have decided to characterize the full spectrum using the extensive metabolizers.

This will allow us -- we do have, we have some indication of efficacy at lower doses. This just gives us a full range or dosing in a safety trial as protocol, and we will then make judgments about what would happen in the development of the program. This does not necessarily mean that we would have to genotype, it just depends on the dose level that we would use.

Okay. And then other question that I have was on the [inaudible] compounds for 1734, and what might be more optimal properties? And what are you really looking for in the preclinical research on those compounds?

The 1734 is a partial agonist at alpha4 beta2. AstraZeneca was interested in developing additional compounds that targeted alpha4 beta2, and we are specifically looking for compounds that may not be metabolized by cytochrome P450-2D6.

Great, thanks so very much for the call.

Thank you.

Your next question comes from the line of Jennifer Chao of Deutsche Bank.

Great, thanks for taking the question. First, with respect to 1734. Don, I was wondering if you could give us a little bit more color on the specific status and progress, certainly keeping in mind that AstraZeneca is continuing forward with their pre qualifying process. But if you could just give us a sense of the kind of substance that is going between your two R&D teams at this point, and whether or not there has been any potential issues that have been identified with respect to any safety or toxicity concerns?

Thank you for the question, Jen. As you know, the four areas that we are doing with AstraZeneca in this product characterization segment, include an in vitro study to determine whether the enzyme cytochrome P450-1A1 is induced. A telemetry study in dogs to assess cardiovascular effects, a clinical trial to assess cardiovascular effects in persons with different metabolic rates, speaking to that cytochrome P450-2D6 polymorphism and an interaction study with an inhibitor of a key enzyme in TC-1734's metabolic pathway, 2D6 and with schizophrenia treatments.

And we have discussed at length about each of those four and what we are disclosing at this point is that they continue -- that AstraZeneca continues to be on track, they continue to make progress. We have the joint development community set up to meet on a regular basis, and we continue to do that. So I am pleased with progress, it remains on the schedule to be able to reach a decision on -- going into Phase IIb studies in first quarter of '07.

And by being on track, Don, do you mean that you are approaching or have already gotten over the critical hurdle, the critical questions in each of these studies that are ongoing?

As I've indicated before, the decision by AstraZeneca would be a weight of the evidence decision, so they will be looking at all of the data, taking it all into account. So the important point now is that they are continuing to stay on track for decision in first quarter '07, recognizing the sunset date on our agreement is April 20, 2007.

During the second quarter, was Targacept involved in any work on 1734 that may have been provided back to AstraZeneca?

No.

Okay.

AstraZeneca is doing all the work.

So at this point, the ball is entirely in their court. And, are they giving you real time updates as to their findings?

What we're doing is, is they -- we're interacting with them on a regular basis so if there are any questions, because we have a considerable amount of expertise around 1734. So, I have encouraged the teams to utilize each others' expertise. And it's that kind of interaction. We are waiting -- for the data to be -- the data are coming into AstraZeneca, they are assessing those data. And then, as we get closer to the ends of those -- the collection of those studies, then we'll be sitting down with them, and they will be presenting the data to us. That has not happened, yet.

So, if I were just to press you a little bit, and to ask you to characterize the dynamic -- if given what you know today about their findings and about the dynamic between the two companies, if they were not opt in at this juncture, given what you know, would it be fair to say that you would find that very surprising?

Well, we have studied this compound now in nine clinical trials and 400 people. And when AstraZeneca set this collaboration up in this R&D plan, we didn't have the Phase IIb results in 193 people. So, I think we're all very pleased with the safety and efficacy around the molecule.

We have no reason to believe that the original optimism that we had when we decided to do this agreement and to permit this analysis, we have data that we believe supports a positive outcome in all four of these areas and look forward to looking at the additional data that they generate and participating in the decision that they make at the beginning of next year.

Okay, that's helpful on 1734. Thank you. And then on 2696, the Phase I, what is the status with respect to the number of patients enrolled and dosed? And then, can you give us a sense of your target enroll completion, and when we should expect potential top line results?

We are planning to get the Phase II dental pane trials started by the end of the year. So running, the planning for that trial is going on now in terms of protocol development. What we learn, as we continue now with the 100 milligram dose in the MRD, will be incorporated into that planning as well and the submission to the ethics committee.

So, I would say that those will be going on in parallel. We believe that we will be able to start the dental pain model by the end of the year, as previously disclosed. We have -- in our original multiple rising dose trial, we had 24 healthy volunteers in the three dose groups 25, 50, and 100. And we will be starting again with 100 milligrams in the efficient metabolizers with six individuals. And then we'll be making decisions based on the results that we have from that before we go up in dose.

So the top line data then on a Phase I multiple rising trial, we should expect sometime when, in the early fourth?

I would say, it's a little difficult to say right now because we've just started -- restarted those trials. So I'm more comfortable -- as we've looked at the timelines, I'm comfortable that we will be able to get the Phase II started which presupposes that we will have access to the multiple rising dose trial.

And so I just don't have a date yet, but I haven't heard a date yet from our researchers on when they expect to have the multiple rising dose available, because there's uncertainty about what we will find at 100, and then what impact that will have on 150. And I do want to just make sure that people realize that when I mention six, people out of 100, that's six on drug, there are nine total including placebo.

Yes, got that. And then just a final last question. On the financials, Alan, wondering if you could just give us a rough break down of the R&D spend over major areas. So on that 4.6 for the quarter ending June, just how that roughly breaks down across? It seems like not a lot of work on 1734 during the quarter, so how is that being doled out?

Yes, a lot of that spending is concentrated in basically infrastructure that we have in place. As you know, with the research collaboration with AstraZeneca, we're committing a lot of that to the work in discovery, in the back ups and follow-ons to that. So, we did make some investment in our different program areas and external spend there. But a good bit of what we're doing now is making sure that we're executing well on our research plan with AstraZeneca. And in the second quarter, if you look at the way that it's structured, sort of the amount that we are entitled to earn if the work that we did in the second quarter is about 1.4 million.

So, that's been driving the R&D spend [inaudible] our people and what they are engaged with. And we did have the significant benefit of the output of all 1734, and then have [inaudible] slow down at [2696 spending] with that being suspended during the second quarter.

So with preparations with regard to the AstraZeneca project or spend related to that, an example of that would be what?

It's basically our people doing the work to discover the back ups and follow-ons. So the research collaboration is under place, and our people are executing under the plan that was agreed to, to come up with the [inaudible] follow-on compound.

Okay, I got you, on the [inaudible]. Okay, very good, thanks a lot.

You're welcome.

Thanks, Jen.

Your next question comes from the line of Terrence Flynn of Lazard Capital Management.

Hi, Don and Alan, thanks for taking my question. Actually I had a few for you guys. The first is just on 2696, have you decided how many doses you would advance into the Phase II molar extraction trial? Would it be one dose, or would it be maybe a couple?

We haven't decided that yet, we're sorting through that, and really, it's likely to be more than one dose. But I haven't seen the final protocol yet.

Okay, great. And then, with regard to the ongoing trial of mecamylamine, as an add on for depression, just wondering what your expectations are there, and what you'll be looking to learn from that trial to apply as you develop 2216?

Remember that when we -- in our prospectus during our IPO, we talked about the fact that we were looking at [inaudible] scores, so that's an important element of the learning. We also are doing additional measures of mood, and those measures -- the constellation of the information that we will receive, will help us understand the kind of effect that we're seeing.

We also disclosed in the prospectus that we had a small effect at the interim analysis. We made a decision not to resize the trial to achieve statistical significance. It doesn't mean that we won't, but we decided to continue to the trial at the size that we originally planned.

So we expect the data in fourth quarter, we're very pleased and we've reported the progress the 2216 has made, and that's the novel compound specifically designed for depression and anxiety. And since 2216 is catching up, essentially with where mecamylamine is, we think it's important to use that learning and then use that to drive 2216 forward.

Okay, great, thanks. And then, I was just wondering if you heard from any of your investigators if maybe Pfizer is planning to evaluate for Chantix for any cognitive disorders in the future?

We have heard nothing. We have seen nothing in the published literature, and we've heard nothing from any of our colleagues that they are moving forward in any other way, but with the smoking cessation invitation.

Okay, and then lastly just a question for Alan. I was just wondering if you could give us the Inversine sales number for the quarter?

Sure, I'd be happy to do that. The Inversine sales in the quarter were 131,000.

Okay, great, thanks a lot guys.

Thanks.

Your next question comes from the line of Joe Aguilera of BioRevolution Capital.

Hi guys, good quarter. Just a question Alan on the shares out, is it 19.1 out?

That is correct.

And what kind of guidance are we giving on the [inaudible] next 12 months? [inaudible] 34, [it's either] ramp up, can you give a little guidance there?

Yes, the guidance that we've given takes us to the end of the year, and we basically provided that in the first quarter earnings release, where we indicated that we'd be -- our operating activities would consume between 18 and 22 million for the nine months from April to December 2006, and that we expect to end the year with cash in the bank in the range of 46 to 50 million.

46 to 50 million?

That's correct.

And in terms of the -- can you explain on the Alzheimer's program, the mechanism that we feel that [technical difficulty] or do we have it [technical difficulty]?

You're breaking up a little bit, but the way I understood the question is; do we understand the mechanism for Alzheimer's disease for the TC-1734 compound. and is it expected, how it relates to Aricept.

Right.

The mechanism -- there are two pieces to this. One is, there is an extensive literature demonstrating that tobacco exposure, and people believe nicotine exposure, is neuroprotective. So, there's been interest in a nicotinic compound for Alzheimer's for some time. With the demonstration that we developed a compound, a nicotinic that has low side effects, that interest has been strengthened and it is the reason AstraZeneca did the deal with us. The principle interest though in the NNR mechanism is around symptomatic improvement.

Because of TC-1734 mimics acetylcholine which is involved in memory and attention, as well as stimulating native acetylcholine relief. So we expect that 1734 will have at least the symptomatic improvement associated with the cholinesterase inhibitors like Aricept, and a better side effect profile -- that's a minimum target profile. And then -- but we expect also that we could have better symptomatic improvement. Any effect on disease modification would have to be determined once we are in the market.

What's the main side effect that we could potentially be looking for in our drug?

From our Phase IIb, when you looked at all the adverse events associated with our Phase IIb trial in 50 to 80-year-olds with age associated memory impairment, we haven't done Alzheimer's disease yet. We came -- our clinicians came to the conclusion that we had placebo like side effects. The most frequently reported adverse event was dizziness, and it actually occurred more on placebo than it did on drug.

And how [long] will that Alzheimer's program take? Where are we at -- [give a] sense, where are we at in that program?

The plan right now talked about by AstraZeneca with us, is that they would try to start the Phase IIb trials in Alzheimer's disease in the first half of '07.

How many patients?

They haven't determined the number of patients yet, but we have disclosed that they are targeting about 800 patients.

Okay.

And then, if you just use conventional timelines for those kinds of trials, you would be looking at the end of 2008 for results out of that trial.

Okay, good, thanks guys.

You're welcome.

[OPERATRO INSTRUCTIONS]

And there are no further questions at this time.

Thank you, very much, and look forward to talking to you next quarter.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the presentation and you may now disconnect. Have a good day.