Crescent Biopharma Inc (CBIO) 2007 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Q4 2007 Targacept, Inc. earnings conference call. My name is Antoine, and I'll be your coordinator for today. (OPERATOR INSTRUCTIONS)

Any statements made or responses given during this conference call that are not truly historical in nature, including without limitation regarding the progress, timing, or scope of the research and development program for any of our product candidates or related regulatory filings or clinical trials; the possible therapeutic benefits of any of our product candidates; any future payments to AstraZeneca or GlaxoSmithKline made to us; or our plans or expectations, future operations financed through physicians, revenues, costs or expenses constitute forward-looking statements within the meaning of the Privates 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 critical accounting policies and risks and uncertainties described under the heading "Risk Factors" in our annual report on Form 10-K for the year ended December 31, 2006, and subsequently filed quarterly reports on Form 10-Q and other filings that we made 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 other date after today. We specifically disclaim any obligation to update any forward-looking statements except as required by applicable law.

I would now like to turn the call over to Mr. Donald deBethizy, President and Chief Executive Officer.

Please proceed, sir.

Thank you, Antoine.

Good afternoon, ladies and gentlemen, and welcome to Targacept's fourth-quarter and year-end 2007 conference call. I'm Don deBethizy, President and Chief Executive Officer, and 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 fourth-quarter and year-ended December 31, 2007, which we have just released.

Targacept has generated substantial momentum in 2007. We formed a major strategic alliance with GlaxoSmithKline.

AstraZeneca advanced our lead product candidate, AZD3480, into two large Phase IIb trials in areas of significant unmet needs.

And we continued to exploit our Pentad drug discovery technology to introduce new product candidates into the clinic.

In the first part of 2008, we were able to secure an additional $30.9 million of capital in a challenging market, strengthening our cash position to support the development of a product pipeline that we plan to have advanced through five Phase II clinical proof of concept trials representing four different product candidates by the middle of 2010.

Momentum is also the appropriate term to apply to NNR-based science since 2007 saw an acceleration in interest in neuronal nicotinic receptors. Major pharmaceutical companies and the scientific and medical communities are increasingly realizing what Targacept has known all along, that NNR's hold great promise as therapeutic targets in areas of high unmet medical need.

Our relationships with AstraZeneca and GlaxoSmithKline underscore our leadership in the NNR space, and we are uniquely positioned to capitalize on this burgeoning scientific area.

Our collaboration with AstraZeneca, which now has been underway for two years, continues to progress very well. In 2007, AstraZeneca initiated two Phase IIb trials of AZD3480, Targacept's lead product candidate.

The first, which is the Sirocco trial, was initiated in July to evaluate AZD3480 in mild to moderate Alzheimer's disease.

The second, which is called the Halo trial, was initiated in August to evaluate AZD3480 in cognitive deficits and schizophrenia.

We expect the combined enrollment for these trials to be approximately 925 patients and that both trials will complete by the end of this year.

AstraZeneca's belief in the NNR mechanism as a therapeutic target for cognitive disorders was further evidenced by its decision in November to pay $2 million to Targacept to secure the right to license TC-5619, the lead product candidate in Targacept's alpha-7 program, following development by Targacept through a Phase II clinical proof of concept trial. TC-5619 is currently in Phase I development.

With regard to the preclinical research collaboration that we are conducting with AstraZeneca, we have advanced additional alpha-4-beta-2 NNR-targeted novel compounds toward the clinic, executing successfully against the objectives of the collaboration for the second year.

We were very pleased in July of 2007 to form an alliance with GlaxoSmithKline through its center of excellence and external drug discovery. The alliance provides us the ability to leverage the significant expertise and resources of a premiere global pharmaceutical company to accelerate several programs.

The five therapeutic focus areas of the alliance are pain, smoking cessation, obesity, addiction, and Parkinson's disease.

The potential for value creation in the alliance is significant, and despite the setback that we experienced in 2007 with our product candidate for pain, TC-2696, where it failed to show efficacy in a Phase II clinical trial in third-molar-extraction patients, we continue to make progress.

We are eligible to receive up to $1.5 billion in milestone payments from GlaxoSmithKline, of which $1 billion would be precommercialization contingent on the achievement of specified discovery, development, regulatory, and commercial milestones across the five areas, as well as step-double-digit royalties on any product sales.

Working with GlaxoSmithKline within this innovative deal structure allows us to do what we do best: leverage Pentad, our discovery and development expertise to drive forward new NNR therapeutics through clinical proof of concept, at which point GlaxoSmithKline, with its substantial resources and late-stage development and commercialization capabilities, would assume full responsibility.

To date we have already received from GlaxoSmithKline an initial payment of $35 million, which included a $15 million equity investment, as well as an additional $6 million payment when we started Phase I with the neuropathic pain candidate TC-6499.

In moving on to depression and anxiety, I would mention that, while we are obviously delighted to be working with AZ and GSK in a variety of areas, we also place particular significance on this program, where we have retained our commercial rights.

In July we presented data from our TRIDMAC trial that showed favorable effects of mecamylamine as an augmentation treatment for depressed patients who did not respond adequately to citalopram therapy.

We later presented preclinical research findings with TC-5214, an enantiomer of mecamylamine, illustrating not only its antidepressant priorities but also its superior potency relative to mecamylamine at specific NNR subtypes, considered promising therapeutic targets for depression.

In light of the TRIDMAC results, these findings highlight the compelling potential of TC-5214 as an augmentation treatment for major depression. We are moving forward aggressively with clinical development of TC-5214 and plan to initiate a Phase I trial of 5214 this quarter and a Phase II clinical proof of concept trial later this year.

As we mentioned in our release, we have completed a Phase I trial of the other clinical stage product candidate in our depression and anxiety program, TC-2216. However, based on our planned development of 5214 and our current budget management plan, we do not expect to conduct further clinical development of 2216 in 2008.

Last month we were able to complete a public offering of 4,370,000 shares of common stock at the market price, resulting in net proceeds of $29.1 million. We feel very gratified to have attracted a strong group of existing and new institutional life-science-focused investors who believe, as we do, in Targacept and its NNR-based science.

In summary, our product pipeline is both deep and diverse with multiple clinical stage product candidates in development for several large underserved markets. With an experienced management team in place and financial resources supplemented by over $83 million received over the last two years from our strategic alliances and the proceeds from our recent public offering, we are well positioned to execute across our business plan.

And with that, let me turn the call over to Alan Musso, our Chief Financial Officer.

Thank you, Don.

Let me now review with you our financial results for the fourth-quarter and the full-year 2007.

2007 saw us improve our financial position with the receipt of $35 million on initiation of the GlaxoSmithKline alliance in July, receipt of a $20 million milestone payment from AstraZeneca in January, and $8 million of additional payments from GlaxoSmithKline and AstraZeneca in the fourth quarter.

We ended 2007 with over $87 million in cash, cash equivalents, and short-term investments, and that was supplemented with the addition of $29.1 million of capital that we raised in a public offering of common stock in January 2008.

We are pleased with the progress that we made in 2007 and remain focused on the careful management of our resources as we advance our programs and work toward achieving additional milestone events under our alliances.

Turning to our operating results, for the fourth quarter of 2007, we had a net loss of $7.6 million, compared to net income of $16.8 million for the fourth quarter of 2006.

For the full year of 2007, we had a net loss of $28.1 million, compared to a net income of $2.1 million for 2006.

Our net operating revenues were $3.6 million for the fourth quarter of 2007, compared with $25.3 million for the fourth quarter of 2006. The decrease was principally due to the recognition of $20 million in revenue in December 2006 upon achievement of a milestone event related to AZD3480 under our agreement with AstraZeneca and lower research fees for the 2007 period under the AstraZeneca collaboration, partially offset by $711,000 in revenue for the 2007 period arising under our alliance with GlaxoSmithKline.

For the full-year 2007, our net operating revenues were $11.6 million, compared to $27.5 million for 2006. This decrease was principally due to the recognition of the $20 million milestone related to AZD3480, partially offset by $1.2 million in revenue for the 2007 period arising under the GlaxoSmithKline alliance and greater research fees for the 2007 period arising under the AstraZeneca collaboration.

With respect to the $6 million that we received from GlaxoSmithKline upon TC-6499's entry into Phase I in the fourth quarter of 2007, we began recognizing that amount into revenue over the estimated term of our research and early development obligations under the alliance agreement.

Our research and development expenses totaled $9.9 million for the fourth quarter of 2007, compared to $7.1 million for the fourth quarter of 2006.

Research and development expenses for the 2007 period reflected $2.5 million of increased spending on our product candidates TC-5619, TC-5214, and TC-6499.

Research and development expense of $34.6 million for the full-year 2007, compared to $21.8 million for 2006. The increase in R&D expense for 2007 resulted principally from increased spending of $7.5 million on our product candidates 5619, 5214, and 6499.

The increase for both 2007 periods also reflect a greater salary and benefit expenses, occupancy costs, and third-party service, supply, and infrastructure costs incurred in connection with the activities under our AstraZeneca collaboration and our GlaxoSmithKline alliance.

Our general and administrative expenses were $2.1 million for the fourth quarter of 2007, compared to $2 million for the fourth quarter of 2006.

General and administrative expenses totaled $8 million for the full-year 2007, compared to $5.7 million for 2006. The increase for 2007 was principally attributable to $1.6 million of additional stock-based compensation expense and greater salary and benefit expenses and occupancy costs.

Our net interest income was $1 million for the fourth quarter of 2007, compared to $740,000 for the fourth quarter of 2006.

And net interest income was $3.7 million for the full-year 2007, compared to $2.5 million for 2006. The increase was primarily attributable to higher average cash balances during the 2007 period following our receipt of the $20 million milestone payment from AstraZeneca, the $35 million in payments from GlaxoSmithKline upon entering into the alliance in July, and the $ 8million in additional payments received from AstraZeneca and GlaxoSmithKline in the fourth quarter of 2007.

Turning now to our financial guidance for 2008, based on our current operating plans and our existing collaboration agreements, we expect net operating revenues for 2008 to be in the range of $16 to $20 million, operating expenses for the year to be in the range of $60 million to $65 million, and we expect to have a balance of at least $75 million in cash, cash equivalents, and short-term investments at the end of the year.

This financial guidance includes both cash and noncash revenue and expense items and does not include amounts that we are entitled to receive from AstraZeneca or GlaxoSmithKline if milestone events are achieved for AZD3480 or TC-6499.

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

Thank you, Alan.

We are very pleased with our accomplishments in 2007 and look forward to continued execution against our business objectives in 2008.

Thank you, again, for joining us on today's call, and we would be happy to take any questions you may have.

(OPERATOR INSTRUCTIONS)

Your first question comes from the line of Terence Flynn with Lazard Capital Markets.

Please proceed with your question.

Good afternoon. Thanks for taking the question, and congrats on all the progress in '07.

First, on 3480, just wondering, I noticed on clinicaltrials.gov that the trials, it looks like, are going to wrapped up in August. And just wondering how many weeks or months after that we might expect to hear from AZ?

We feel very comfortable with the year-end prediction that we have on top-line results coming out of those trials, and we're delighted to see AZ's update of the clintrials.gov site with the acknowledgment that they thought that the in-life treatments portion of those studies would be done in August. So we feel very good about reporting top-line results for both the studies by year end.

Okay. So fourth quarter's a good estimate?

Yes.

Okay. And then on 5619, the alpha-7 program, I know AstraZeneca has an alpha-7 that they've been developing for sometime as well. What are your thoughts on that program, and how is AstraZeneca looking at their compound versus 5619, and do you think they're planning to take both forward or -- can you give us any help there?

Well, we really don't know what their plans are on their alpha-7 program, but we were aware of the fact during our negotiations in 2005 that we both had alpha-7 programs. And that's why we specifically had this third leg to our deal, which was a Targacept-triggered option to bring in an alpha-7 compound that was ideally suited for cognition or schizophrenia.

So we triggered that, we offered it to AstraZeneca, and they exercised their maintenance fee to maintain that option. And so we like the conditions of that because that allows 5619 to be under our control as we develop to proof of concept. And we've also disclosed that there's a significant milestone payment that would come to us if we hit proof of concept, which is targeted for the end of 2009.

So I really can't comment on the kind of progress that they're making on their alpha-7 program, you'd have to ask them, but I'm delighted that they are interested in our compound. Obviously, they're interested in the alpha-7 area. That bodes well for the general area of cognition. And we are on track with Phase I ongoing now, expecting to get a Phase II proof of concept trial started by year end, and having results by the end of 2009.

Great. Thanks a lot.

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

Please proceed with your question.

Great. Thanks for taking the questions.

First, just from a financial standpoint with the recent capital raise, how does management think about use of proceeds as far as bolstering the pipeline, and what would be appropriate expectations for additional licensing and partnering agreements here in 2008?

Well, as you know, Jen, with five clinical programs, we have two proof of concept trials moving forward that are being paid for by AstraZeneca; that's AZD3480. And then now with contractual obligations around 5619 and 6499 and our decision to drive 5214 forward on our own, the opportunity in front of us to develop five proof of concept opportunities through the mid-2010 was in front of us.

So our capital raise was to extend our runway out to the middle of 2010 to get through all five of those proof of concept trials, and we feel positioned very well.

And further point on that, four of those five are part of collaboration agreements, whereby we're eligible to receive milestone payments on success. We do have built-in opportunities to see additional capital -- significant amounts -- coming into the company with success on that. And then we're working hard to execute against the GSK program in preclinical, as well as doing some additional work across the portfolio and the work that we're doing with AstraZeneca in that preclinical collaboration.

Okay. So that sort of answers the question, which is, certainly, I think some investors are just trying to get a better handle on whether or not what we have now in front of us in terms of these five compounds is really what we should be focused on or whether or not there might be other opportunities for the technology platform to generate additional molecules of interest and potentially more big pharma collaborations.

How do you think about the research engine and whether or not there's some additional value-creating opportunities there?

Well, that was the real -- that was one of the big successes of 2007, really, was the establishment of even a stronger foundation under the company with the GSK deal. We've had a very nice research collaboration with AstraZeneca over the last two years in the alpha-4-beta-2 area that's allowed us to expand our medicinal chemistry and discovery efforts in preclinical pharmacology.

The timing of that collaboration and the shift as we've made progress there now is ideal for shifting resources to GSK, and we have five preclinical programs going on there that are funded through the upfront payment that we received from the seed at GSK, as well as we've disclosed $16 million of pre-proof of concept milestones per program have been negotiated into that deal.

So we feel that with any reasonable level of success that Pentad will be generating through these funded programs new chemical entities that will be moving into the clinic on a regular basis.

So this company will be generating new opportunities for growth, really, for years to come. So we're very pleased with that foundation, it sets us very nicely up with these five proof of concept programs as well. So over the next 30 months, we will be looking at significant value creation within the company.

Okay. Thanks. We'll stay tuned. Thank you.

Thank you.

(OPERATOR INSTRUCTIONS)

Your next question comes from the line of Kim Lee with Pacific Growth.

Please proceed with your question.

Good afternoon. Thanks for taking the question.

To the extent that you're able to, can you give us an update on TC-5214, as well as TC-6499 and timelines of expectations for data?

We're making good progress with TC-5214. We met with the FDA back in August in a Type C meeting, where we were able to have a good conversation with them around our plans to develop. We were able to describe our findings around mecamylamine in augmentation therapy for partial responding depressed patients. We emphasized our interest in moving the enantiomer 5214 forward. We expect to start Phase I here in first quarter, and then we expect to start the Phase II proof of concept trial midyear, and our plans are to have that trial complete and top-line results report out midyear 2009.

Okay. Great. And TC-6499?

Well, as you know, we reported in the late fall -- in fourth quarter that we started Phase I on 6499, our neuropathic pain compound, and that's subject to the option agreement with GlaxoSmithKline. We received a $6 million payment from GSK, and that Phase I is ongoing now, and we expect to complete that in 2008. And our expectation is is that we will be then starting a proof of concept trial with 6499 and completing that by mid-2010.

And that was the fifth proof of concept opportunity -- that we talked about earlier -- in terms of increasing our capital so that we could get to the middle of 2010.

Right. Great. Thanks a lot.

Thank you.

There are no further questions at this time.