Crescent Biopharma Inc (CBIO) 2009 Q4 法說會逐字稿

Good afternoon and welcome to Targacept Fourth Quarter and Full Year 2009 Financial Results conference call. My name is [Emetia] and I will be your operator for today. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions).

I would now like to turn the conference over to Targacept management. Please proceed.

Thank you, Emetia. I'm Alan Russo, Targacept's Chief Financial Officer.

Before we get started today, I would like to remind you that on this call, we may make forward-looking statements under the provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements that are not purely historical in nature facts regarding among other things the progress or scope of development of any of our product candidates or programs, such as the size, design, population, conduct, duration, or objective of any clinical trial, the timing for initiation or completion of or availability of results from any clinical trial, or for submission or approval of an NDA, or the indications for which any product candidate may be developed, the competitive position of any product candidate, or the commercial opportunity in any target indication, any payments with AstraZeneca or GlaxoSmithKline may make to us, or our plans, expectations, or future operations, financial position, revenues, costs or expenses.

Actual results may differ materially from those expressed or implied by forward-looking statements as a result of various important factors such as those described under the heading Forward-Looking Statements in the press release that we issued earlier today or under the heading Risk Factors in our most recent annual report on Form 10-K or 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 disclaim any obligation to update any forward-looking statement except as required by applicable law.

I will now turn the call over to Dr. Don deBethizy, our President and Chief Executive Officer.

Good afternoon and thank you for joining us today. In addition to Alan, Dr. Geoffrey Dunbar, Targacept's Vice President, Clinical Development and Regulatory Affairs, is here with me.

Earlier today, we issued a press release describing our quarter and year-end financial results highlighting our 2009 accomplishments and providing updates on some of our clinical programs. We will take just a few moments here to review key highlights from the release and then we'd be happy to take your questions.

As you know, 2009 was an extremely exciting and rewarding year for Targacept. We again demonstrated the promise of NNR therapeutics to make a tremendous impact on the lives of patients with CNS disorders. Two key clinical trials translated into significant business success for the company and our stockholders last year. In July, we reported positive results from our phase IIb study of TC-5214, showing its potential as a new mechanistic approach for the treatment of depression for the millions of patients who do not respond well to first-line antidepressant therapy. With over 42 million estimated to suffer from major depressive disorder worldwide and the National Institutes of Mental Health's large STAR*D study indicating that a approximately 63% of patients with depression don't achieve remission with first-line SSRI therapy, this is clearly a very large unmet medical need. Our augmentation trial of TC-5214 catalyzed significant interest, leading to a $1.24 billion collaboration and license agreement with AstraZeneca. And earlier in the year, we reported positive results from our phase II trial of AZD3480, a non-stimulant with a therapeutic profile that could represent an important advancement for treating patients with ADHD, and we received a $10 million milestone payment from AstraZeneca based on these results.

Our success in 2009 sets the stage for additional progress in 2010 and beyond. Our pipeline now includes five clinical stage programs. Following an end of phase II meeting that we and AstraZeneca recently had with the FDA, we continue to anticipate the initiation in mid 2010 of phase III development of TC-5214 as an adjunct therapy for adults with major depressive disorder who do not respond adequately to first-line antidepressant therapy with the goal of an NDA filing with the FDA in 2012. We also continue to expect the phase II trial of TC-5214 as a switch monotherapy approach for similar MDD patient populations to be initiated in the second half of 2010.

Beyond TC-5214, we remain very enthusiastic about the prospects of our three novel compounds in phase II development for cognitive disorders, AZD3480, AZD1446, and TC-5619. These product candidates represent potential new treatments for ADHD, Alzheimer's disease, and cognitive dysfunction in schizophrenia, conditions that affect millions for which currently available therapies either have safety or efficacy limitations or in the case of CDS, don't exist at all.

As we proceed in 2010, we will continue with AstraZeneca to consider the development programs for these product candidates with the shared goal of optimizing the promise of NNR therapeutics to help patients suffering from impaired cognitive function.

Our fifth clinical stage product candidate, TC-6987, is currently in phase I and under consideration for downstream development in various indications. Our goal is to expand our portfolio by leveraging our Pentad drug discovery platform and established preclinical capability to advance at least one product candidate into the clinic each year.

Towards that end, we conduct research programs where both the medical need and the commercial potential are significant, such as Parkinson's disease and other therapeutic areas of our alliance with GlaxoSmithKline. Our scientific leadership in the NNR space has been reinforced with our receipt of two grants from the prestigious Michael J. Fox Foundation, as well as several recent publications that highlight critical disease areas where rationally-designed compounds capable of affecting select NNRs may be of particular benefit.

In total, the programs I've outlined for you this afternoon should provide multiple opportunities for important progress in 2010 and we look forward to updating you as we move forward.

I will now turn the call over to Alan for a few brief comments on the financials. Alan?

Thank you, Don.

In addition to the significant business successes that Don outlined, we were also able to solidify our financial position in 2009. In October, we completed a public offering of 2.2 million shares of common stock at a price of $21 per share, generating net proceeds to Targacept of $44.4 million. With this financing, we ended the year with $111.1 million in cash, cash equivalents, and short-term investments. In January 2010, we supplemented our cash balance with the receipt of a $200 million upfront payment under our TC-5214 agreement with AstraZeneca.

For the fourth quarter of 2009, we reported a net loss of $26.4 million compared to a net loss of $5.4 million for the fourth quarter of 2008. For the year ended December 31, 2009, we reported a net loss of $39.4 million compared to a net loss of $25.7 million for 2008. The increased net loss for the fourth quarter and year ended December 31, 2009 was primarily due to a $16 million license fee obligation to the University of South Florida Research Foundation triggered upon the December effectiveness of our TC-5214 agreement with AstraZeneca. Overall our 2009 financial performance reflected our sustained focus on capital efficiency.

Moving to our 2010 financial guidance, based on our current operating plans and expectations related to our collaborations with AstraZeneca and our alliance with GlaxoSmithKline, we expect net operating revenues for the year to be in the range of $80 million to $90 million, our operating expenses for the year to also be in the range of $80 million to $90 million, and to have a balance of at least $230 million in cash, cash equivalents, and investments at year end.

This financial guidance includes both cash and noncash revenue and expense items. In addition, we expect that our current cash resources will be sufficient to meet our operating requirements at least through the end of 2013.

Now let me turn the call back over to Don.

Thanks Alan. And thanks again to everyone for joining us on today's call. In closing, I couldn't be more thrilled with our performance in 2009 or more enthusiastic about our prospects for the future. 2009 was a breakthrough year for Targacept. In 2010, we will remain focused on the prudent management of our resources as we look to capitalize on an unmatched portfolio of NNR therapeutics to build upon our success and achieve our vision of building health and restoring independence for patients.

Now with that, we'd like to open it up for questions. Operator?

(Operator Instructions). And your first question comes from the line of Terence Flynn with Lazard Capital Markets. Please proceed.

Hi. Thanks for taking the questions. Congrats on all of the progress. Just wanted to ask first in terms of your end of phase II meeting with FDA, so that's already occurred?

Yes.

Can you give us any insight from that meeting in terms of I guess the size of the phase III program as well as the design?

Yes, Terence. I'll let Geoffrey Dunbar answer that question.

Yes, thank you, Don.

Well, first let me say - let me just give you a little flavor of the meeting itself. It went very well. It was very cordial, very professional, of course. And the agency did reflect on their pleasure at seeing an antidepressant with a new mechanism of action. Importantly there were no roadblocks that were developed at the meeting, so it does mean that we can be starting our phase III clinical program on - as planned by mid this year.

The program, just to give you a little flavor of it, will consist of four pivotal trials and one, which are relatively short-term eight-week trials and also one long-term safety trial. Two of the trials will be two-arm studies with flexible dosing and the other two will be fixed dose parallel group designed trials with three doses of 52, 40, and placebo. They all have the same very similar approach as we used in our very successful phase II trial in which non-responding patients are identified prospectively and then randomized into the double-blind phase of the study.

We - overall we will be exposing over 2,000 subjects with 5214 acutely and there will, of course, be at least 300 patients to six months and 100 patients out to a year according to ICH guidelines.

Okay. And in terms of the background therapy that they are non-responding to, can you tell us a little bit about that?

Yes, they will be poor responders or non-responder to a basket of seven SSRIs or SNRIs, all of which are commonly prescribed.

Okay. And then the criteria that you're using to judge the non-responders, can you just review that, if it's similar to phase II?

Yes, it's basically identical to phase II.

Okay. Great. And then just a question on - so this - I'm guessing the guidance you gave is - includes, takes into account these trials for - and your cost of those trials in 2010. Is that correct, Alan?

Yes, Terence, that is correct.

Okay, great. Thanks a lot, guys.

Thanks, Terence.

Your next question comes from the line of Bret Holley with Oppenheimer. Please proceed.

Hi. It's actually [Matt Lowe] in for Bret today. Just a couple of questions, the first one is if you could just remind us of the plans for filing 5214 in Europe and secondly if you could share any thoughts on the phase IIb program for 3480 in adult ADHD, that'd be great. Thank you.

Well, first of all, I'd like to just say that our overall program is a global development program, but our plans are to file initially in the US. And with that, I'll ask Geoffrey to provide a little more color to that.

Right. Yes, good, thank you, Don.

We are in the process of organizing to visit and talk to the European agency, which of course is an important prerequisite before finally designing the European part of the plan. As Don has already mentioned, what I shared with you so far, it will be used for global registration, but there will be the need for some extra studies for European consumption if you like. Primarily there will be two extra studies. One would be a study in geriatric patients, patients 65 to 85, and the other a bigger, perhaps more important or as important trial for European usage is a relapse prevention trial with - which looks at the - which assesses the effectiveness of - which will assess the effectiveness of 5214 in relapse prevention. Patients are made - got better and then the medication is continued out to show that they're stabilized and then there's a randomized, placebo-controlled withdrawal phase.

And the second part of that question was around the plans around ADHD and 3480. And we're still in the process of working with AZ on the development of those plans. And we'll be disclosing more detail around those as we get closer to initiating them.

Okay, that's great. Thank you very much.

Thanks, Matt.

Your next question comes from the line of Alan Carr with Needham & Company. Please proceed.

Hi. Good afternoon, everyone. There was actually I think another trial that you had mentioned in your opening comments to start the second half of this year, a monotherapy trial. Can you elaborate on that one?

Sure. That's the monotherapy switch trial and Geoffrey can describe that.

Yes, yes, again, that's - unlike the program, which I described before, which is a phase III trial, series of trials, the monotherapy will be a phase IIb dose range- finding study and as Don mentioned, it will looking at patients who have failed first-line therapy, antidepressant therapy, and then will be switched to our medication, which in this trial will be monotherapy.

Well, is this - I think past discussions with you, this is something that maybe the Europeans had expressed an interest in, but you just mentioned that a few minutes ago, Geoff, why - or do you think is something that would help get approval here or over there?

Yes.

Yes, Alan, this - it's neither of those reasons. It's just we believe that this compound has the potential to work as a monotherapy in the same patient population that in it has worked as an augmentation. So it's entirely possible based on the mechanism and the preclinical data that people that are not responding well to their first-line therapy, either SSRI or SNRI, could respond on 5214 alone. So this trial will be asking that question and as Geoffrey indicated it will be a dose range-finding study because we don't know. We've only done studies now as add-on or augmentation with citalopram, so it'll be an important study for us to get our minds around how well it performs as a monotherapy in the very same patient population where we have these inadequate responders.

Okay. And then a numbers question -- I take it, I mean, expenses going up quite a bit this year. I take it it's all related to the 5214, that's how - the program going into phase III. Is that how we should model it for the year?

Yes, that is a big driver of the increase in cost, the most significant factor on that. And the other things are we are going to be continuing to invest in our pipeline, in our research program, but the biggest driver of the cost increase is definitely the phase III co-development obligation and the overall co-development obligations on 5214.

Are revenues going to mirror that as well? Is related to maybe a milestone --(Inaudible—multiple speakers).

-- is actually the recognition of that upfront payment, which is going to be taken in over about a 33-month period is the current estimate, so that'll actually drive revenues, incremental revenues in 2010 of about $72 million.

Is there a milestone around starting phase III or anything like that or?

We don't have any milestones projected in - clinical milestones in this year's forecast.

Oh, okay. And then one last item about 6987, when do you think you'll have a - results from that in terms of is this just a safety trial or is this going to have some efficacy in it, too, somehow?

We're in the phase I program now, so we've been working through the single ascending dose and we're moving into the multiple ascending dose. And then we'll be - we still have - we're still evaluating all of the preclinical data that we've generated around 6987. 6987 is an alpha7-targeted compound. It's quite different than 5619. And we're quite excited about having two alpha7 compounds, one moving forward in cognition and now there's a broad opportunity around 6987 and we just need to identify how best, what's the low hanging fruit from an indication and efficacy standpoint and where do we want to take it.

So we're - it's - we just haven't made that decision because we're still generating some preclinical data, but I can tell you we had a research team meeting this morning where we were just brainstorming about where the opportunities were in the pipeline and the list of potential indications around 6987, there's a lot of enthusiasm around that molecule.

Well, great. Thanks for taking my questions.

Thanks, Alan.

(Operator Instructions).

Your next question comes from the line of Jon LeCroy with (inaudible) --

Hey Jon.

Oh, hey. Sorry. I wanted to touch on the USF payment just a little bit. So it looked like it was 8% of the $200 million you're getting from Astra. How should we look at that going forward once you start generating sales on the product? Because I think let's you book it in the 20% royalty range. Is it going to be that high that you're paying back 8% to USF or is that a one-time anomaly?

Yes, it's basically the USF agreement has the two sort of areas of obligation. One is for milestone payments that we receive and then the second is a royalty component that applies to product sales. And we've disclosed that we expect that our royalty obligation will be in the low single-digit range. So when we get royalties and the product gets on the market, that's the obligation that we anticipate for USF.

And that's on overall sales, not what you book?

That's on overall sales, that's correct.

And then I think you get something like a, I don't know, a $350 million royalty on approval. Would that get paid out at an 8% or is that different as well?

Yes, we actually disclosed that we have total milestone eligibility of over $1 billion going forward, I think like $1.04 billion going forward, which is divided into regulatory/first commercial sales milestones and then sales-based milestones. And the applicable portion to USF is on all of that. And it's actually a 10% royalty rate. In this particular case because we are committing ourselves to co-development funding of the program, that was a milestone to the amount of the10% of sort of the net upfront exclusive of sort of our anticipated sort of funding to the next milestone event.

Okay, great. Thanks.

Yes. Thanks, Jon.

Your next question comes from the line of Juan Sanchez with Ladenburg. Please proceed.

Good afternoon, guys.

Hey Juan.

Hi Juan.

Hi. Hold on. What are the three doses that are - you're testing in the phase III clinical trial? What was the lowest and what was the highest?

We will be covering a similar dose range that we have in our flexible dose design. And we are also going to explore some lower doses.

So the lowest - you're going to [take the low-dose] indications, right, or?

We're exploring low enough doses that we will - we don't expect to see the kind of efficacy that we've been seeing in the dose range we've explored so far.

Got it. Thank you.

So when we move to - when we move the protocols to clintrials.gov, you'll be able to see the doses. We just haven't disclosed them yet.

Okay. Thanks a lot.

Thanks Juan.

Your next question comes from the line of Joshua Schimmer with Leerink Swann. Please proceed.

Hey guys. Thanks for taking the question. Just curious as to why the 3480 phase IIb study isn't starting until mid 2010 given that the data was towards the end of 2009. What are kind of the interim steps that are underway that are occurring up until that trial starts?

Thanks, Josh, for the question. We - what we - what AZ wanted to do was to because of the remarkable phase II results that we had where we had stimulant-like effects with 3480 and placebo-like side effects, they really wanted to get the pediatric opportunity caught up with the adult opportunity. So they've been running juvenile tox and doing the clinical trial material and getting prepared for a larger program. And that will align both the adult and the pediatric and have them run somewhat staggered but in parallel.

Well, why is it important to have the pediatric catch up to adult?

It was just the decision that AZ wanted to do. It also allowed them to do some other enabling studies and some preparation clinical trial material. So it was their decision to wait while they got the juvenile tox going.

Got it. Thanks very much.

Thanks Josh.

This concludes today's question-and-answer session. I would now like to turn the call back over to Mr. Don deBethizy for closing remarks.

Thank you very much. Well, thanks, everybody, for participating in this exciting time for our Company. It's - it is really gratifying. I - biotech companies as I always tell the employees that the kind of success we had in 2009 is elusive in biotech and we're really looking forward to a year in 2010 where we're focused on execution and efficient cash management. So we're excited. Thank you for participating along with the Company and look forward to our next update. Thank you very much.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.